Perquisite — Exceptions — Treatment of prescribed ailment in approved hospital — Application for approval filed by hospital before outbreak of Covid-19 pandemic — Renewal denied on ground that State Government Authority had revoked approval granted to assessee for treating Covid-19 patients — Order of Principal CIT rejecting application unsustainable

Perquisite — Exceptions — Treatment of prescribed ailment in approved hospital — Application for approval filed by hospital before outbreak of Covid-19 pandemic — Renewal denied on ground that State Government Authority had revoked approval granted to assessee for treating Covid-19 patients — Order of Principal CIT rejecting application unsustainable

The assessee was a hospital, and it was granted approval by the Principal Chief Commissioner under proviso (ii)(b) to section 17(2)(viii) of the Income-tax Act, 1961 initially in the year 2011-12, with each renewal being valid for three years and the last of the renewal granted being valid till 21st March, 2020. The assessee made an application on 13th January, 2020 seeking renewal of approval granted two months prior to the expiry of the validity period of the existing approval granted. While the application was pending for renewal of approval, the Covid-19 pandemic struck and the assessee was granted approval by the State Government Department of Public Health and Family Welfare for providing treatment for Covid-19 patients. Thereafter, based on complaints, the State Government Medical and Health Officer, on 3rd August, 2020 revoked the permission granted to the assessee. The assessee submitted its explanation and sought for recalling the revocation order. While the explanation offered by the assessee was under consideration by the State authorities, the second respondent issued a notice dated 12th October, 2020 calling upon the assessee to show cause why the cancellation order of the State Government should not be considered for deciding the application for recognition under proviso (ii)(b) to section 17(2)(viii). The assessee submitted in its letter to the Principal Chief Commissioner that when it made the application for renewal of approval, there was no Covid-19 pandemic outbreak, that the State Government Department of Public Health and Family Welfare revoked the permission for Covid-19 treatment only and not for other medical treatments, that the State authority’s action was based on misinformation and baseless propaganda made by the media without taking into consideration the actual facts, that the assessee was under the process of getting permission again for Covid-19 treatment from the State Government Department of Public Health and Family Welfare and requested to grant the renewal of application under proviso (ii)(b) to section 17(2)(viii). The Principal Chief Commissioner rejected the application for renewal of approval by an order dated 19th October, 2020.

On a writ petition challenging the order, the Telangana High Court allowed the writ petition and held as under:

“i) The order rejecting the renewal of approval under proviso (ii)(b) to section 17(2)(viii) had been passed by the Principal Chief Commissioner by traversing beyond the notice and was in violation of principles of natural justice causing prejudice to the assessee. The order read with the notice showed that it was passed as a chain reaction to the order of the State Government, which dealt with determination of corona virus disease as a respiratory disease and it was a prescribed disease under clause (a) of sub-rule (2) of rule 3A of the Income-tax Rules, 1962.

ii) The order indicated that it had taken into consideration various issues which had not been mentioned in the notice issued to the assessee. The only ground mentioned in the notice was with regard to the State Government revoking the mandate given for covid treatment, whereas the order, apart from dealing with the revocation of mandate for covid treatment by the State Government, also dealt with other aspects as to the nature of the corona virus disease being a respiratory disease and the assessee having resorted to excessive, exorbitant and unconscionable pricing being a misconduct or an offence, without putting the assessee on notice of the allegations and to offer its explanation. The claim of the Principal Chief Commissioner that Covid-19 treatment was a respiratory disease was not backed by any material or scientific data. Since the notice issued relied only on the revocation of permission for providing medical treatment for Covid-19 by the State Government, and the revocation having been lifted by the State authority by proceedings dated 13th September, 2020 and the assessee was permitted to provide treatment for Covid-19 patients, the very basis of the notice dated 12th October, 2020 issued was removed.

iii) The order rejecting the renewal of approval granted under proviso (ii)(b) to section 17(2)(viii) was unsustainable.”