ITAT Mumbai on Section 12AB Registration: Relief to Masina Hospital Trust and Guidance for Charitable Hospitals

The Mumbai Bench of the Income Tax Appellate Tribunal has delivered an important order in the case of Masina Hospital Trust Vs CIT (Exemptions), dealing with renewal and retrospective cancellation of registration under Section 12AB for a charitable hospital. The decision not only restores the assessee’s registration but also reiterates crucial principles applicable to charitable medical institutions, particularly those governed by Section 41AA of the Maharashtra Public Trusts Act, 1950 and the Indigent Patients’ Fund (IPF) Scheme.

Since the text is a judicial order, what follows is a structured summary of the key findings, reasoning, and implications, rather than a line-by-line rewrite.

Background of the Dispute

Masina Hospital Trust, a public charitable trust running Masina Hospital at Byculla, Mumbai, held registration under Section 12AB of the Income Tax Act 1961. The trust applied in Form No. 10AB for renewal of this registration under Section 12A(1)(ac)(ii).

The Commissioner of Income-tax (Exemptions), Mumbai [CIT(E)]:

  • Rejected the renewal application filed in Form No. 10AB; and
  • Cancelled the existing Section 12AB registration retrospectively from 23.09.2021 under Section 12AB(1)(b)(ii)(B).

The assessee challenged this order before the ITAT. The appeal was heard along with connected matters in Breach Candy Hospital Trust v. CIT(E), ITA Nos. 5374/Mum/2026 and 5350/Mum/2026, where similar questions were involved. The Tribunal largely applied the same legal analysis and conclusions to Masina Hospital Trust, mutatis mutandis.

The Tribunal identified that the controversy revolved around the following major issues:

  1. Scope of “medical relief” under Section 2(15) and its interaction with the proviso concerning commercial activities.
  2. Applicability of Sections 11, 12A, and 12AB to charitable hospitals generating substantial receipts and operating on an organised basis.
  3. Whether alleged non-compliance with Section 41AA of the Maharashtra Public Trusts Act, 1950 and the Indigent Patients’ Fund (IPF) Scheme, as approved in
    Sanjiv Gajanan Punalekar v. State of Maharashtra & Others, Writ Petition (PIL) No. 3132 of 2004 (Bombay HC), could justify denial/withdrawal of Section 12AB registration.
  4. Whether retrospective cancellation of registration from 23.09.2021 under Section 12AB(1)(b)(ii)(B) was valid in the absence of fraud, misrepresentation or fundamental illegality in the original grant.
  5. The permissible scope of enquiry by CIT(E) at the registration/renewal stage, including reliance on revenue per bed, percentage of indigent patients treated, salary costs, and IPF balances to infer commercial motive.

Assessee’s Grounds and Submissions

Masina Hospital Trust raised multiple grounds against the CIT(E)’s order, which, in substance, were:

  • The denial of renewal and cancellation of registration under Section 12AB was unjustified in law and on facts.
  • The allegation of non-compliance with the IPF Scheme framed under Section 41AA of the Maharashtra Public Trusts Act, 1950 was incorrect, particularly when:
    • The hospital had been regularly filing IPF reports before the Charity Commissioner; and
    • No adverse order or finding had ever been made by the competent authority under the Maharashtra Public Trusts Act.
  • Various factual findings of CIT(E) on:
    • Average cost per patient,
    • Percentage of indigent and weaker section patients,
    • Expenditure on such patients,
    • Average revenue per bed per day,
    • Amounts allegedly inflated or short-spent under IPF
      were asserted to be factually wrong or based on incomplete analysis.
  • The CIT(E) wrongly concluded that the hospital was operating with a profit motive and was not charitable, despite the assessee incurring recurring deficits.
  • The order was alleged to be passed in breach of natural justice, including absence of a proper show cause on some crucial allegations and adverse inferences without due opportunity.
  • Even assuming some commercial characteristics, the assessee pointed out that the proviso to Section 2(15) relates to “advancement of any other object of general public utility” and not to “medical relief”, which is an independent charitable head.
  • An “advisory note” added by the CIT(E) in the impugned order was criticized as factually incorrect and outside his jurisdiction.

The assessee also adopted the detailed legal submissions and arguments already advanced in the connected Breach Candy Hospital Trust appeals.

Revenue’s Stand

The Department, supporting the CIT(E)’s order, argued that:

  • The number and proportion of indigent and weaker section patients treated were extremely low compared to total patients.
  • Substantial bills, high average cost figures and the average revenue per bed per day indicated that the hospital was effectively running on commercial lines, contrary to the spirit of charity.
  • There was an alleged shortfall in utilising 2% of gross billing for indigent and weaker section patients and the IPF balances had risen, suggesting non-utilisation of the funds meant specifically for such patients.
  • On these parameters, the CIT(E) was justified in treating the activities as non-genuine and as being run with profit motive, hence warranting both rejection of renewal and cancellation of existing registration.

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