2025 (3) TMI 288 - AT - Income Tax

Partnership firm providing hospital services qualifies for Section 44AD presumptive taxation scheme despite medical nature of activities

Kety Medicare Centre Versus ACIT CC-2, Thane

ITAT Mumbai held that a partnership firm providing IPD services, room rent, and X-ray facilities conducts business activities, not medical profession ... Application of provisions of Section 44AD - Net profit estimation - assessee firm is earning income only from IPD services, room rent, X- ray charges, etc. - HELD THAT:- We find that the activity carried out by the assessee firm are in the nature of business and not profession as per provisions of section 44AD (6) and section 44AA(1) of the Act. A combined reading of the above two sections clearly establishes that the provisions of Section 44AD do not apply to individuals engaged in the medical profession. However, it is submitted that the assessee is a partnership firm providing services such as patient room rentals, X-ray facilities, and other ancillary inpatient department (IPD) services. The income generated from doctors' fees is separately declared by the respective doctors in their individual tax returns. Therefore, the assessee cannot be classified as a ‘person’ engaged in the ‘medical profession.’ We respectfully rely on the rulings in Dr. K. K. Shah [1981 (7) TMI 39 - GUJARAT HIGH COURT] and Shalini Hospitals [2006 (5) TMI 138 - ITAT HYDERABAD-B] which support this position. Accordingly, the turnover of the assessee firm should not be considered as professional income. The addition based solely on the partner’s statement, is unwarranted, particularly when the remaining receipts have been treated as business income and the net profit rate has been accepted by the Ld. AO. See S. Khader Khan Son [2013 (6) TMI 305 - SC ORDER]. The assessee has consistently maintained a net profit ratio ranging between 6% and 11% on its turnover in preceding and succeeding years, which has been accepted by the revenue authorities. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether the assessee suppressed its professional receipts, leading to an additional income of Rs. 86,25,000/- being added by the Assessing Officer (AO).Whether the addition of Rs. 86,25,000/- as income was justified under the presumptive taxation scheme under Section 44AD of the Income-tax Act, 1961.Whether the statement recorded during the survey under Section 133A has evidentiary value for making additions to income.Whether the activities of the assessee firm constituted business or professional services under the Income-tax Act.ISSUE-WISE DETAILED ANALYSISSuppression of Professional ReceiptsThe Revenue authorities relied on a statement from Dr. A.S. Poonawala, a partner in the assessee firm, to claim that Rs. 86,25,000/- was suppressed. The assessee argued that the books were incomplete, and the statement was based on a tentative profit & loss account prepared under survey conditions. The assessee had already declared business receipts of Rs. 1,40,15,090/-, including the disputed amount, and offered a profit at 8% under Section 44AD.Legal Framework and PrecedentsThe Court considered the legal framework under Section 44AD, which allows presumptive taxation for eligible businesses, and Section 133A, which pertains to survey proceedings. The Court referenced the decision in CIT vs. S. Khader Khan Son, where the Supreme Court held that statements recorded under Section 133A do not have evidentiary value.Court's Interpretation and ReasoningThe Court found that the addition of the entire Rs. 86,25,000/- as income was incorrect, as the assessee had already offered a profit on these receipts under the presumptive taxation scheme. The Court noted that the net profit rate offered by the assessee was consistent with previous years and accepted by the department.Application of Law to FactsThe Court applied the principles from S. Khader Khan Son, emphasizing that statements under Section 133A lack evidentiary value, and therefore, the addition based solely on such a statement was unjustified.Business vs. Professional ServicesThe Court examined whether the assessee's activities constituted business or professional services. The assessee argued that its income was from room rentals, X-ray charges, and IPD services, not professional services. The Court referenced several precedents, including Shalini Hospitals vs. ACIT and CIT vs. Upasana Hospital, to support the classification of the assessee's activities as business rather than professional services.Legal Framework and PrecedentsSection 44AD(6) and Section 44AA(1) were considered, which exclude professional income from the presumptive taxation scheme. The Court also referenced the decision in Dedicated Health Care Service TPA(India) (P.) Ltd. vs. ACIT, which distinguished between professional services for tax deduction purposes and business activities.Court's Interpretation and ReasoningThe Court concluded that the assessee's activities were business activities, not professional services, as the income was derived from non-professional sources like room rent and X-ray charges, and professional fees were separately declared by individual doctors.Application of Law to FactsThe Court applied the principles from Shalini Hospitals and Upasana Hospital to determine that the assessee's activities were business activities. Consequently, the addition of Rs. 86,25,000/- was unwarranted under the presumptive taxation scheme.SIGNIFICANT HOLDINGSCore Principles EstablishedStatements recorded under Section 133A do not have evidentiary value for making additions to income.The activities of a nursing home providing room rentals and ancillary services constitute business activities, not professional services, under the Income-tax Act.The presumptive taxation scheme under Section 44AD applies to business activities, and the entire receipts cannot be added as income if profit is declared under this scheme.Final Determinations on Each IssueThe addition of Rs. 86,25,000/- was quashed as the income was already declared under the presumptive taxation scheme, and the statement under Section 133A lacked evidentiary value.The assessee's activities were classified as business, not professional services, and thus eligible for the presumptive taxation scheme under Section 44AD.The appeal of the assessee was allowed, and the addition made by the Assessing Officer was deleted.