2017 (2) TMI 1105 - AT - Income Tax

Court Upholds Tax Exemption for Hospital Pharmacy Store

ACIT (E) 2 (1), Mumbai Versus National Health and Education Society, Co. P.D. Hinduja National Hospital and Medical Resarch Centre

The court upheld the grant of exemption under section 11 of the Income Tax Act, 1961, for the pharmacy store within the hospital, despite a profit motive. ... Exemption u/s. 11 - assessee was registered as a Charitable Organization with DIT (Exemption), Mumbai, u/s. 12A and also with Charity Commissioner of Mumbai and was running a hospital and medical research centre - Held that:- It is noted that Ld. CIT(A) has reversed the order of the AO and allowed the relief of the assessee relying upon his own order for earlier year and decision of Hon’ble Bombay High Court in the case of Baun Foundation Trust [2012 (4) TMI 172 - BOMBAY HIGH COURT] while deciding this issue, Ld. CIT(A) has not discussed at all actual facts of the case as were involved in the year before us. Therefore, we find it appropriate to send this appeal back to the file of Ld. CIT(A) who shall decide this appeal afresh after taking into account fact of this case more specifically on those issues as were raised by the Ld. DR before us. He shall also take into account, the decision relied upon by the Ld. Counsel before us, and adequate opportunity of hearing shall be given to the assessee to file written submissions and evidences before passing the appeal order. Ld. CIT(A) shall take into account entire material as may be placed on record by the assessee and shall pass detailed and well reasoned order after discussing facts of this case as well as applicable legal position. The assessee shall be free to raise all the legal and factual issues as may be considered appropriate. With these directions this appeal is sent back to the file of Ld. CIT(A). - Decided in favour of Revenue for statistical purposes. Issues:1. Justification of granting exemption u/s. 11 of the Income Tax Act, 1961.2. Allowance of exemption u/s. 11 despite profit motive in running a pharmacy store.3. Compliance with maintaining separate books of account for a pharmacy store.4. Setting aside the order of the Commissioner of Income Tax (Appeals) and restoring that of the Assessing Officer.Issue 1:The appeal was filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) granting exemption u/s. 11 of the Income Tax Act, 1961. The Revenue questioned the justification of this exemption.Analysis:The Revenue contested the grant of exemption u/s. 11 by the Ld. CIT(A), arguing against the validity of the exemption given the profit motive in running a pharmacy store within the hospital. The Assessing Officer (AO) had treated the surplus earned by the pharmacy store as business income u/s. 11(4A), emphasizing that the assessee failed to maintain separate books of accounts for the pharmacy store. The Ld. CIT(A) relied on previous orders and held the addition made by the AO as erroneous, deleting the surplus amount.Issue 2:Allowance of exemption u/s. 11 despite the profit motive in running a pharmacy store within the hospital.Analysis:The AO contended that the surplus earned by the pharmacy store should be assessed as business income u/s. 11(4A) due to the profit generated. However, the Ld. CIT(A) disagreed, emphasizing that the running of the pharmacy store was part of the hospital's charitable activities and not a separate business venture. The Ld. CIT(A) referred to the trust's objective clause and the approval granted under section 10(23C)(via) to support the decision to allow the exemption u/s. 11.Issue 3:Compliance with maintaining separate books of account for the pharmacy store.Analysis:The AO highlighted that the assessee did not maintain separate books of accounts for the pharmacy store, which was a requirement under the law. The Ld. CIT(A) considered this aspect but ultimately allowed the exemption u/s. 11, stating that the running of the pharmacy store was part of the philanthropic activity of the hospital. The Ld. CIT(A) found no basis for treating the pharmacy as a separate business venture.Issue 4:Setting aside the order of the Commissioner of Income Tax (Appeals) and restoring that of the Assessing Officer.Analysis:The Revenue appealed against the order of the Ld. CIT(A), arguing that the decision was made without proper verification of facts. The tribunal decided to send the matter back to the file of the Ld. CIT(A) for a fresh examination of the case, emphasizing the need to consider all relevant facts and legal positions before making a decision. The appeal was allowed for statistical purposes.In conclusion, the judgment involved a detailed analysis of the issues related to granting exemption u/s. 11 of the Income Tax Act, 1961, in the context of running a pharmacy store within a hospital. The decision highlighted the importance of considering the charitable nature of activities and compliance with legal requirements in determining tax liabilities.