Three top-notch hospitals in Mumbai and a well-known worldwide non secular organisation-all functioning as charitable trusts-have been denied Revenue tax (I-T) exemption on the grounds that they had been finishing up business actions.
The tax workplace has cancelled their registrations, which got here up for renewal in March 2026, two individuals acquainted with the event advised ET.
In what might set off a protracted authorized feud, some trusts have already challenged the division earlier than the I-T Appellate Tribunal, a quasi-judicial establishment.
Charitable and non secular trusts, NGOs, and non-profit establishments should register themselves with the tax division beneath Part 12AB of the I-T Act. Launched within the Finance Act 2020, the registration is significant for claiming tax exemption. Because the organisations’ registrations reached expiry, the tax workplace questioned their excessive revenue margins and the era of surpluses, which it believes are towards the tenets of charities.
The worldwide non secular organisation drew the division’s consideration for earnings from its eating places providing premium vegetarian delicacies in several cities. One other entity has come beneath the lens for reporting a surplus from internet hosting musical programmes.
With out registration, a charity’s surplus could be taxed just like the earnings of any enterprise entity.A tax officer can inquire into the genuineness of a belief’s actions, whether or not its charitable objects are literally being met, stated Isha Sekhri, who specialises in tax and regulatory advisory. “This isn’t a guidelines or documentation train. The deliberate use of the phrase ‘genuineness’ within the I-T Act indicators a substance-based check. The main focus is on whether or not a belief is actually finishing up its acknowledged charitable functions in a significant manner. In the end, it boils right down to details. Paper compliance alone is not going to suffice. Trusts should reveal that their actions are genuinely charitable in follow,” stated Sekhri.
‘DEVIATIONs’ FROM CHARITABLE GOALS
Authorized circles say the disputes might finally attain the Supreme Courtroom as a result of a query mark on the charitable standing can impression the organisations. “What comes into play is the strengthened compliance regime beneath Part 12AB(4) of the I-T Act,” stated chartered accountant Ashish Karundia.
The supply pertains to cancellation of registration in circumstances of ‘specified violations’, together with diversion of revenue from declared aims, engagement in non-incidental enterprise actions, failure to keep up separate books of account, conduct of non-genuine actions, or non-compliance with different relevant legal guidelines. “It is a regulatory shift. Whereas surplus era in itself is just not inherently problematic, sustained deviation from charitable functions or governance requirements is more likely to end result within the denial of tax exemption,” stated Karundia.
Regardless of parts of subjectivity, the actions convey out the division’s stance: it disapproves tax aid to hospitals and different providers run by charities if the charges and charges are similar to these charged by company entities providing comparable providers.
In truth, a few of the top-tier hospitals not often transcend assembly the municipality rule of necessary reservation of some beds for the poor. A number of months in the past, a number one hospital within the metropolis gave a declaration of the charitable actions it will pursue after the I-T division questioned sure costly equipment import.
Tax officers could also be taking a leaf from the 2022 Supreme Courtroom judgement within the case between the income and Ahmedabad City Improvement Authority. “The ruling offered doctrinal readability by distinguishing between permissible incidental actions and the impermissible commercialisation of charitable aims. The Courtroom has affirmed that entities engaged in advancing ‘normal public utility’ might get better prices and even generate a restricted surplus, offered such actions are intrinsically linked to their acknowledged aims and stay inside the prescribed statutory limits. Notably, pricing that considerably exceeds prices might point out a transition from a charitable objective to a business enterprise,” stated Karundia.
