Hospital Pharmacy Profits Exempt under Section 11: Tribunal Decision

The Tribunal allowed the appeals for all the assessment years (2006-07 to 2009-10), holding that the pharmacy is an integral part of the hospital business and does not require separate books of account. The profits from the pharmacy are eligible for exemption under Section 11, and the assessee did not violate Section 11(4A).

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Issues Involved:

1. Violation of provisions of Section 11(4A) by not maintaining separate books of account for the pharmacy.
2. Estimation of income from pharmacy medicines and denial of exemption under Section 11.

Issue-wise Detailed Analysis:

1. Violation of Provisions of Section 11(4A) by Not Maintaining Separate Books of Account for the Pharmacy:

The primary issue revolves around whether the assessee violated Section 11(4A) by not maintaining separate books of account for the pharmacy, which is part of the hospital run by the assessee trust. The assessee argued that the pharmacy is an integral part of the hospital business, and thus, maintaining separate books for the hospital, which includes the pharmacy, satisfies the requirement of Section 11(4A). The Revenue contended that the pharmacy constitutes an independent business requiring separate books of account.

The Tribunal examined the relevant provisions and case laws. It referred to the judgment of the Hon’ble High Court in Baun Foundation Trust vs. CCIT, which held that the activity of a chemist's shop is incidental or ancillary to the dominant object of running a hospital. The Tribunal found that maintaining a pharmacy is necessary for running a hospital and thus, it is an integral part of the hospital business. The Tribunal concluded that the pharmacy business does not require separate books of account as it is part of the hospital business, and therefore, there is no violation of Section 11(4A).

2. Estimation of Income from Pharmacy Medicines and Denial of Exemption under Section 11:

The second issue concerns the estimation of income from pharmacy medicines and the denial of exemption under Section 11. The Assessing Officer had segregated the profits from the pharmacy business and taxed them as business income, denying the exemption under Section 11 due to the alleged non-compliance with Section 11(4A).

The Tribunal noted that the pharmacy's turnover was included in the hospital's overall turnover, and the medicines were sold to patients at MRP. The Tribunal reiterated that the pharmacy is an integral part of the hospital business. It referred to the jurisdictional High Court's judgment in Baun Foundation Trust, which emphasized that a hospital must have a pharmacy as part of its operations. The Tribunal found that the pharmacy's profits were used for the hospital's purposes and thus, met the requirements for exemption under Section 11.

The Tribunal concluded that the pharmacy business is ancillary to the hospital's objectives, and maintaining consolidated books of account for the hospital, including the pharmacy, fulfills the conditions of Section 11(4A). Therefore, the profits from the pharmacy are entitled to exemption under Section 11.

Conclusion:

The Tribunal allowed the appeals for all the assessment years (2006-07 to 2009-10), holding that the pharmacy is an integral part of the hospital business and does not require separate books of account. The profits from the pharmacy are eligible for exemption under Section 11, and the assessee did not violate Section 11(4A). The Tribunal's decision was pronounced in the open court on 27th May 2016.

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