ITAT Ranchi Decision on Section 80G Recognition :- Jeevan Rekha Trust v. CIT (Exemption), Patna- ITA Nos. 23 & 24/RAN/2025 | Order dated 05 January 2026- Assessment Years: 2023–24 & 2024–25

 CORE ISSUE : Whether a trust earning income by outsourcing its hospital building to a private entity and receiving consideration as a percentage of hospital turnover, with substantial recurring surplus and minimal charitable outgo, is entitled to recognition under Section 80G of the Income-tax Act, 1961.

 BACKGROUND :- The assessee trust had acquired a building for the purpose of running a hospital. However, being unable to operate the hospital on its own, the trust outsourced the hospital operations to Blue Sapphire Healthcare Private Limited, a private company. Under the arrangement, the assessee received 3% of the total hospital turnover as consideration.

 In addition, the trust operated two medical shops within the hospital premises, which, according to the assessee, were running at a loss. The assessee claimed that it was engaged in charitable activities and sought recognition under Section 80G for the relevant assessment years.

 The CIT (Exemption), Patna, by orders dated 30.11.2024, refused to grant such recognition, leading to the present appeals before the ITAT.

 ARGUMENTS OF THE ASSESSEE  : The assessee contended that:

 (i)       The hospital was originally intended to be run by the trust for charitable purposes.

(ii)     Due to operational difficulties, hospital activities were outsourced, which should not defeat the charitable character of the trust.

(iii)    Generic medicines were being sold through medical shops, and the trust was not earning profits from such activity.

(iv)    The consideration received from the private operator was incidental and the trust continued to pursue charitable objects.

Accordingly, it was argued that denial of Section 80G recognition was unjustified.

 ARGUMENTS OF THE REVENUE- The Department opposed the appeals by pointing out that:

 (i)       The trust owned a building in which a Super Speciality Hospital was being run by a private entity on a commercial basis.

(ii)     The assessee was receiving substantial income linked directly to hospital turnover, indicating a revenue-sharing commercial arrangement.

(iii)    TDS was deducted under Section 194JB, evidencing that the receipts were treated as fees for professional or technical services.

(iv)    The surplus generated year after year was significant, whereas the actual relief to patients was comparatively minimal.

(v)     The assessee had failed to demonstrate genuine charitable activities or application of income in accordance with its stated objects.

Reliance was placed on the judgment of the Hon’ble Supreme Court in New Noble Educational Society v. Chief Commissioner of Income Tax (Civil Appeal No. 3795 of 2014, dated 19.10.2022).

 FINDINGS AND REASONING OF THE TRIBUNAL :- The ITAT, after considering rival submissions, upheld the orders of the CIT (Exemption). The Tribunal observed that the Supreme Court in New Noble Educational Society had clearly emphasized that charitable activities must not partake the character of commercial activities. Though the decision related to Section 10(23C), the principles governing the meaning of “charitable purpose” were equally relevant for Section 80G.

 On facts, the Tribunal found that:

(i)       The trust had effectively outsourced its hospital building for commercial exploitation, earning income as a fixed percentage of hospital turnover.

(ii)     The nature of receipts, coupled with deduction of TDS under Section 194JB, clearly established that the income was commercial in nature, not voluntary donations or charitable receipts.

(iii)    The surplus generated by the trust was substantial year after year, while the relief extended to patients was limited to about ₹30 lakhs at best, despite income exceeding ₹1 crore.

(iv)    The assessee failed to demonstrate meaningful utilization of income towards charitable purposes or adherence to its stated objects of running hospitals and clinics.

 The Tribunal concluded that mere ownership of a hospital building and outsourcing its operations does not constitute charitable activity, particularly when the arrangement results in consistent commercial surplus without corresponding charitable application.

 FINAL DECISION :- The ITAT held that the assessee was not engaged in genuine charitable activities and had failed to satisfy the statutory requirements for recognition under Section 80G of the Income-tax Act, 1961. Consequently, the denial of Section 80G recognition by the CIT (Exemption) was upheld, and both appeals were dismissed.

 KEY TAKEAWAY :- This decision reiterates that Section 80G recognition is activity-centric, not object-centric. Where the dominant activity reflects commercial exploitation of assets, and charitable application is marginal or incidental, recognition under Section 80G is liable to be denied, notwithstanding the charitable objects stated in the trust deed.

 Disclaimer: This summary is prepared for academic and professional discussion in tax journals. It is based on the facts and findings recorded in the ITAT order and should not be construed as legal advice or a substitute for independent professional judgment

 LINK TO DOWNLOAD THE ORDER
https://itat.gov.in/public/files/upload/1767617036-TW2TuG-1-TO.pdf