2025 (2) TMI 1433 - AT - Income Tax

Pharmacy income treatment for hospital trust under section 11(1) denied; tribunal restores exemption and deletes addition.

Denial of exemption under section 11(1) was overturned by ITAT, which held that operation of an in house pharmacy is integral to the hospital's dominant ... Denial of Benefit u/s 11(1) - addition made on account of pharmacy income - HELD THAT:- The co-ordinate bench has decided the same issue in [2025 (2) TMI 705 - ITAT MUMBAI] held that Medicines are one of the most common healthcare interventions and play a significant role in patients' health management. Pharmaceuticals are an integral part of patient care. Appellant / assessee fulfills all the requirements which necessitates the running of pharmacy and chemist division in the hospital to achieve the dominant purpose of the trust for which the revenue authority have given approval u/s 12A of the Act to the assessee hospital and, therefore, the assessee hospital is entitled for the benefit u/11(1) of the Act and the income from the pharmacy and chemist division of the assessee cannot be treated as business income from a separate and independent activity carried out by the assessee. Thus, on the basis of summarized grounds the points of determination enumerated in the beginning of the order are accordingly decided in the affirmative and in favour of the assessee. We accordingly direct the Assessing Officer to delete the addition - Assessee appeal allowed. Issues: Whether the surplus/income of the hospital's pharmacy/chemist division is taxable as business income because separate books of account were not maintained as required under section 11(4A) of the Income-tax Act, 1961, and whether the pharmacy/chemist division is incidental or ancillary to the dominant charitable object of running the hospital for medical relief.Analysis: Applicable provisions include Section 11(4A) (separate books of account for business activities incidental to charitable purpose), Section 11(1) (exemption of income applied to charitable trusts), and Section 12A (registration/recognition of the trust). The Tribunal examined whether the pharmacy/chemist activity is incidental or ancillary to the dominant object of providing medical relief and whether separate books of account were maintained for the pharmacy division as required by Section 11(4A) of the Income-tax Act, 1961. The Tribunal followed co-ordinate-bench precedent and CBDT guidance recognizing that pharmacies/chemist shops supplying medicines to in-house and out-patients can be incidental to the hospital's dominant charitable purpose, and also noted findings that separate books of account were maintained for the pharmacy division, satisfying the twin conditions of Section 11(4A).Conclusion: The surplus/income of the pharmacy/chemist division is incidental to the dominant charitable object of the hospital and the assessee satisfies the requirements of Section 11(4A); therefore the addition treating pharmacy income as business income is deleted and the appeals are allowed in favour of the assessee.