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The deployment of Profits must be a pre-condition to the grant of the exemption.- Madras HC

Parivar Seva Sanstha v. The Commissioner ,The Corporation of Chennai, W.P. No.32041 of 2019 and WMP.No.32294 of 2019 - 29.10.2020

The case was argued before Hon'ble Justice Dr. Anita Sumanth. The petitioner is the Parivar Seva Sanstha, an organization registered under the Societies Registration Act, 1860 on 11.09.1978. It runs 32 clinics pan India and is engaged in the activities of population control, medical relief, social marketing of contraceptives, mass level programmes, the education of youth in family planning, and other societal measures in the aforesaid areas. This writ petition is filed under Article 226 of the Constitution of India praying to issue a writ of Certiorarified Mandamus calling for the records on the file of the respondent in dated 22.07.2019 and consequent demand notice dated 10.09.2019 and quash the same as illegal, arbitrary and inequitable and consequently direct the respondent to grant exemption to the writ petitioner from payment of property tax, for the property.

The main question is that,

Whether the petitioner is entitled to exemption from the payment of property tax in terms of the Madras City Municipal Corporation Act, 1919 (‘Act’) that extends an exemption for various categories of organizations and activities under Section 101 thereof?

The counsel for the petitioners relies on the decision of a learned Single Judge of this court in Govel Trust vs. The Commissioner and Others (order dated 13.11.2019 in W.P.No.6014 and 6015 of 2018) . The counsel for respondents relied on The Special Officer and Commissioner, Tiruchirapalli Corporation, Tiruchirapalli vs. Hindu Mission Hospital, represented by its secretary (2008 2 L.W. 159),

The Court reasoned that prosperity is not the preserve of a commercial institution alone. It is probable, possible and indeed necessary that even charitable organizations including hospitals should be prosperous as increased prosperity will only lead to greater levels of charity and service. The deployment of the profits must, be a pre-condition to the grant of the exemption. The argument to the effect that the mere existence of profit would debar an institution from claiming exemption, thus, stands rejected.

It was concluded that,

“The concept of ‘feeding the charity’ assumes importance and relevance as unless the institution is well-fed, it will wither and die, and along with it, the activity of charity. This cannot be the intention of the policy makers. It must therefore be the objective of every enactment to ensure that institutions engaged in charity are nurtured, of course, with all protocols in place to prevent abuse/misuse of the exemption granted and the surplus earned, if any. In my view, Section 101 of the Act should be interpreted with this end in mind.”(Para 36)
“In light of conclusion to the effect that the mere fact that that clinic had earned a surplus in some years is not material per se for the grant of exemption, what remains is for the respondent to verify specifically the avenues into which the surplus generated for those has been ploughed. This exercise shall be taken up and completed, with all inputs to be provided by the petitioner, within a period of six weeks from date of receipt of this order. The petitioner shall also satisfy the respondent that all conditions imposed by the income-tax authorities for the grant of exemption from income-tax have also been complied with, scrupulously” (Para 37)




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