Delhi: Max hospital in tax trouble; found flouting charity clause

  • Avantika Mehta, Hindustan Times, New Delhi
  • Updated: Apr 05, 2015 08:27 IST

A tribunal has ruled that a charitable trust that runs the Max Super Speciality Hospital in south Delhi's tony Saket area was not entitled to tax exemptions - an order that could force the medical chain to pay arrears running into crores of rupees.

In a hard-hitting order that ended a four-year litigation, the Income-Tax Appellate Tribunal, a quasi-judicial body mandated to judge tax disputes, has said the Devki Devi Foundation (DDF), of which Max Super Speciality Hospital in Saket is a unit, was engaged in "exorbitant" profit-making but wasn't paying taxes in the mask of a charitable institution.

The foundation "was charitable to only one entity out of the whole planet, i.e., the corporate Max group of companies. It was not charitable towards society or public at large but, in fact, it was uncharitable," said ITAT vice-president GC Gupta.

The bench was hearing an appeal filed by DDF against a 2011 decision of the director of income tax (exemptions), Delhi cancelling the registration granted to the foundation under rules related to the registration of charitable trusts contained in the Income Tax Act, 1961.

Asked if the order would affect the hospital's day-to-day workings or its patients, Max Healthcare said, "The order is not final and the trust plans to appeal against it as it believes ITAT has grossly erred in its judgment. The order has no bearing on the operations of the East Block of Max Hospital Saket. Max Healthcare is a service provider to Devki Devi Trust and continues to manage the operations of the hospital."

The land was given to the hospital under the condition that it would provide discounted patient care to those who cannot afford it and also carry out medical research. The tax department has alleged the hospital violated these conditions.

Slamming the DDF for "charging the most exorbitant fees, if not the highest rates so charged", the tribunal said the commissioner for income tax had submitted that the foundation was registered as a charitable society with the main aim of research but had "failed to do any research work and has not spent any expenditure on it".

It also allegedly obscured its income flow by signing contracts with a web of companies that eventually showed its income as "net loss" despite actually booking robust profits. It "siphoned off its receipts to commercial corporate companies by entering into a number of agreements with them, to make itself liable to the entire amount of its excess of income over expenditure and even more and after deducting allowable expenditure, the net income was negative, i.e., a 'loss', year after year," the bench added.

The senior counsel for the foundation submitted it had incurred a loss of Rs 40 crore on "charitable purposes", while adding that Max Healthcare was not a party connected to his client. "The name of the assessee's hospital is 'Max Super Speciality Hospital, a unit of Devki Devi Foundation, Saket', but the mere mention of the name 'Max' shall not alter the charitable activities of the assessee," he added.

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