The Income Tax (I-T) department has said that while the tax liability on the Escorts Heart Institute and Research Centre (EHI&RC) was only about Rs 10 crore, the issue was whether a charitable institution was entitled to continue with tax exemption, even after it had changed its nomenclature.
The department has said that the merger of the Delhi-based EHI&RC with the Chandigarh-based one which had exactly the same name was a questionable move, as the former enjoyed tax exemptions under sections 80G and 12A of the Income Tax Act.
Because of the merger on March 31, 2000, the benefits were transferred to the new entity, to which it was not entitled.
The combined entity was subsequently transformed into a corporate body (limited company) on June 1, 2000 to raise investments from domestic and foreign sources.
An Escorts spokesperson refused to comment on the issue. However, the spokesperson added that the income tax department has asked for some additional information which will be furnished by the company in a day or two.
The Chandigarh institution has assets of only Rs 7,000, compared with an asset of over Rs 110 crore of the Delhi hospital.
Moreover, the tax exemption had been given to the latter as it was a charitable institution.
In the Memorandum of Association (MoA) of the Chandigarh EHI&RC, the clause regarding charitable institution and that on non profit nature was not there at all right from the beginning. (These were clauses l and f of the MoA of the Delhi-based EHI&RC).
A study conducted by the Natioanl Institute of Public Finance and Policy has estimated that the Central Board of Direct Taxes loses about Rs 3,000 crore every year on account of the exemptions given to charitable hospitals and educational institutions.
Moreover, the tax exemption to Delhi EHI&RC was based on a specific commitment undetaken by the institute that it will retain its accumulated
