TaxTMI 
TaxTMI 
1976 (4) TMI 86
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.... accounting year after allowing certain percentage for professional services. . Turnover determined Penalty 1970 - 71 85,66,649-00 3,85,498-00 1971 - 72 98,36,594-00 5,01,052-00 1972 - 73 1,09,88,749-00 5,76,909-00 Break up of figures as later ascertained from the records: 1970 -71: Drugs Rs. 24,87,238 Oxygen Rs. 76,126 Miscellaneous Rs. 12,320 . Rs. 25,75,684 (not income. Eye camp Rs. 3,218 - 71) 1971 - 72: Drugs Rs. 27,87,866 Oxygen Rs. 90,230 Miscellaneous Rs. 9,140 . Rs. 28,87,236 (incl. Value of glases supplied) 1973-74 Total turnover determined: by Assessing Officer . Rs. 63,76213-17 Exemption : . . Blood & Plasma Rs. 4,62,192-00 . X-ray Rs. 10,82,317-00 . X-ray Rs. 2,377-00 . . . Rs. 15,46,886-00 . . Rs. 48,29327-17 Taxable at 3 ½ % Rs. 45,02.508-00 . Taxable 7% Rs. 3,25,923-00 . Taxable 15% Rs. 896-00 . . Rs. 48,29,327-00 . . Miscellaneous scrap included in the above : Rs. 18,392-00 . . Rs. 159-40 . Rs. 18,551-40 Case was remanded by....
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....t was recognised by the Government of India for imparting training to its medical officers and was also recognised by the World Health Organisation and other Voluntary Medical Institutions. Further courses were also introduced with the result that this institution is one of the pioneer post-graduate centres having M.D. and M.Sc. courses in all the major branches of Medicine besides numerous Diploma Courses. The one bedded clinic started by the dedicated Ida Sophia Scudder at the mission compound in Vellore has now grown up as an institution with 1176 beds with various specialities. The institution is engaged in the research activities with the aid of funds from India and abroad with the support of bodies viz., World Health Organisation, ICMR and CSMR. The result of such research in Neuro-surgery, Neuro-chemistry, Artificial kidney, open heart surgery, radioisotope laboratory, nutrition research, kidney transplantation, etc., is said to be well recognised in Indian Medicinal World. The motto of the institution "Not to be ministered unto but to minister" as enshrined by its founder is claimed to be the leading spirit of the institution. Such is the history of the institution. 3. T....
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.... be applied in and towards furtherance of the object, "but not otherwise". Clause 3(1) further specifically provides as under:- "To any surplus made from any activity or any surplus in the hands of the Association solely for the purpose of the Association so that they shall at no time be distributed among the members". The accounts show that the appellant receives grants and donations from India and abroad, besides fees from students and income from Government. It also receives contributions from the patients from various centres of activities like Main Hospital, Eye Hospital, Mental Health Centre, Rural Hospitals, Rehabilitation Institute, etc. But it is the appellant's case that the expenditure actually exceeds the gross income from the students or the patients inasmuch as there is a deficit even after the voluntary donations. Without such voluntary donations, there is definitely a large gap between the gross income and expenditure in appellant's activity in any branch, since it is not the appellant's intention to profiteer from any of its activities. 4. In the context of what has been said in the preceding paragraph it is necessary to consider the basis of charges colle....
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....h the approval of the fitting as well as its subsequent use. Even an ordinary orthopaedic shoe cannot be supplied from ready stock and it has to be carefully made while making prosthesis for an amputees leg or hand or calipers for a polio case which require high skill. The workshop is manned by qualified engineers and artisans. The charge, it is claimed, merely includes the cost of materials, labour and overheads for making and fitting as well as the professional skills involved throughout out the process and there is no profit at any stage. On the other hand, the patient does not receive merely an artificial limb or the appliances as mere goods but receives attention and training of competent medical and engineering staff. There is no supply to an outsider. Hence, it is the appellant's case that there is no mere sale involved. The tariff for the same has been filed and it shows that it is based upon the number of work hours required for making them and the cost of materials. Similarly glasses are supplied in the Eye Hospital. Anesthetic drugs are administered to patients for operation and blood supplied. Oxygen is also similarly administered. Charges are made for the same but it w....
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...." (under the Industrial Disputes Act) is wider and that with such a definition, the Labour Court had come to the conclusion that it cannot be an industry following the decisions of the Supreme court in Safadrajung Hospital, New Delhi vs. K.s. Sethi; M/s. T.B. Hospital, New Delhi vs. Workmen and Kurji Holy Family Hospital vs. The State of Bihar(1). The Supreme court had concluded that Safdarjung Hospital did not embark on any economic activity which can be said to be analogous to trade or business. It found that it was nothing more than a place "where persons can get treated." T.B. Hospital, besides being a charitable institution was primarily intended for research and training, and that the hospital with beds had to be maintained only for the purpose of such research and training. It was further held that, "treatment is thus a part of research and training". As for Kurji Holy Family Hospital, it was also primarily found to be for training, research and treatment and that its income was mostly from donations. The distribution of surplus was prohibited (as in appellant's own case). It was the contention of the appellant that almost all the features of the three institutions find plac....
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....t of the charges for prescription, it is submitted, is not different. Hence the alternative contention of the appellant is that no sales are involved. According to him, the supplies treated as alleged sale of drugs, oxygen, anithia, glasses, blood, X-rays, artificial limbs, diet, etc., would clearly constitute treatment of patients and not sales. In this view, he contended that we are left with sales of discarded miscellaneous items which he claimed included apparently supplies of glasses for eye hospital and similar such supplies. If these are removed, he contended, the miscellaneous sales of really discarded materials would be less than the taxable minimum practically for all the years. At any rate such sales were claimed to be not " in the course of business" 7. The appellant had still another alternative contention for most substantial part of the dispute and this contention it was argued, clinches the case for appellant. The Government had exempted even actual sales of medicine, artificial limbs, etc, wide G.O. Press No. 976, Revenue, dated 8th March, 1959 onwards till G.O. Press No. 21 Revenue, dated 5th Jan, 1965. In fact, it was asserted that no attempt had ever been mad....
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..... 1,500. These facts, he submitted would speak for themselves. 8. Thiru J. Venugopal, the learned State Representative on the other hand opposed each of the arguments raised in favour of the appellant. According to him the appellant was a dealer for more than one reason. He claimed that the object of the association is " the establishment, maintenance and development of a Christain Medical College and Hospital in India". He claimed that Clause 3(n) authorising the association "generally to do all such acts and things as may seem to the association to be convenience and conductive to the carrying out of the objects of the association" enables the association to do its business. He also pointed out that it is not necessary that the association's object should authorise doing business. If business is actually done, the association becomes a dealer whether it is authorised by its terms of incorporation or association. He claimed that the appellant received fees from patients to nearly 1 crore of rupees while the donations are hardly a lakh of rupees. He therefore argued that sale of medicine is the main part of the appellant's activity. He also claimed that if the accounts of the me....
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....tute business by virtue of definition of business, even in the case of Government Railways. After all, the appellant had sought and obtained exemptions for part of its sales by its own petitions only because the appellant itself had no doubt that the sales were otherwise liable to tax. He therefore claimed that it is not too late in the day to question the basic assumption that the appellant is a dealer. 9. The learned State Representative next dealt with the plea that there has been n sale involved and that there is mere prescription and supply as part of treatment of patients. He submitted that even granting that the supplies of medicines can be part of treatment, it was not so in appellant's case in appellant's case the sales were not in the course of prescription since service charges were separately levied. The consideration was purely for medicine. The appellant itself had on a number of occasions referred to its receipts as sales. The patient and the hospital are two parties. Medicines are the goods involved. Cash is the consideration. There is transfer of property. He claimed that these ingredients constituted unmistakable sales. The fact that these medicines were dispen....
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.... that the preamble is not part of the notification and that we are limited to interpret the words of the Notification as such which according to him do not spell out exemption. He also argued that even if we were to hold that the appellant is entitled to exemption on its sales under the terms of Notification not all its sales would be so exempt. Sales of miscellaneous items, sales of glasses etc., are not automatically covered. This submission, he was careful enough to add, was alternative in nature and it is the Department's case that the entire assessment are justified. 11. Penalties were also levied and this was stoutly opposed by the learned counsel on more than one ground. He argued that the question of penalty does not arise when the appellant is not liable to tax and, what is more, even sales taxable under the law were notified to be exempt under Notification. He also cited a number of authorities to show where the tax-payer is under the bonafide impression that the sales are not liable to tax, there cannot be any question of penalty. He claimed that, when the authorities themselves did not take action against the appellant year after year, the appellant could not have an....
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....Revenue that Clause 3 (n) with authorises the association to do all other "acts and things" are wide enough to include business. We find that business has not been mentioned in any of its clauses. Clause 3 (n) has to be read with other clauses and in our opinion it is an enabling provision found in such documents relating to public institutions in order that the powers to carry out the objects are not unduly restricted. Clause 3 (n) reads as under:- "Generally to do all such other acts and things as may seem to the association to be convenient and conducive to the carrying out of the object of the Association." It clearly shows that the Clause 3(n) hardly contemplated any activity outside the declared object as found in Clause 2. Besides, we do find that clause 3(n) (1) direct application of the surplus, if any, for the purpose of the Association only and prohibits any dividend to any of its members. Even as pointed out by the appellant, the Labour Court has also held that the appellant is not an "industry". The decision of the Supreme Court in the case of Safdar Jung Hospital and others(1) held that similar hospitals could not be "industries" within the meaning of Industrial....
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....s laws. While we have no doubt in holding that the appellant is a public institution with 'service' as its motto, we do agree that it is certainly possible for a public trust or institution to carry on business either in violation of its declared objects or even while carrying on its objects (eg. An Institution with the object of rehabilitating blind persons conducting a workshop for them). It can be a dealer qua certain activities. We have therefore, to consider whether any of the activities undertaken by the association can be taken to the business in this sense not withstanding the fact that there is clearly no profit motive. Profit motive is not always necessary to constitute business. In fact s.2 (d) makes it statutorily clear that profit motive is unnecessary for a decision. If the activities have commercial characteristics they would be "business" notwithstanding their being profit or not we would, however, in this context, like to add that the learned State Representative feebly sought to suggest that the appellant did make the profit it hospital alone, or one or other of the undertakings are separately considered. The learned State Representative's attempt does not take in....
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....ve that the word 'business' should be given the largest connotation. But the mere activity of selling or purchasing will not constitute business unless there are commercial characteristics attached to such activities. These principles, in our opinion, are well established and in this context, it is not necessary to consider all the decisions cited by both the sides before us and which form part of our records and the written submission submitted by both the parties. A householder's purchasing grocery or selling old newspapers regularly does not become business merely by such activities. It is because Act of buying grocery or the Act of selling the old newspaper is not a business Act but primarly an Act incidental to the management of his household. In Indian Iron & Steel Company Ltd. vs. Member, Board of Revenue(6) it was held that a person cannot be a dealer unless he carries on the business of selling goods in a commercial sense. Even a hotel, which runs business as hoteliers, may not be liable to pay tax on its sales in a cafetaria where such sales were confined to employees without profit motive, since, as held by the Delhi High Court in East India Hotels Ltd. vs. Addl. Commiss....
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.... course of his business and ultimately integrates the same with a sale, then such a transaction would come within the net of taxation. This is so because his primary intent to sell the same when he purchased it lends support and colour to the transaction as sale by a dealer within the meaning of taxation laws." The above principle laid down in the case of Deputy Commissioner of Commercial Taxes vs. Thirumal Mills Ltd(9) by the Madras High Court had also been approved by the Supreme court, though the decision itself was on another ground relating to prospective nature of amendment relating to incidental sales. It has been so observed in the judgement of the Delhi Court in East India Hotels Ltd. vs. Addl. Commr. S.T. as under:- "Some of the activities of a person may be included in the definition of 'dealer' wild others may not. Where incidence of tax is ought to be attracted in respect of an activity for which a person cannot be called a 'dealer' the starting of proceedings under the Act, would be wholly without jurisdiction and can be struck down. The Supreme Court in State of Tamil Nadu vas Thriumagal Mills Ltd., (1972) 29 STC 290; (1972 Tax LR 1944 SC.) approved of the abov....
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....nsultation, treatment and for medicine. It is well established that as long as these supplies are made only to patients as part of treatment, the fact that separate charges are made for medicine does not involve a divisible sale of medicine. One should consider this proposition to be well established in view of the authorities quoted from English law from Benjamin's "sales". such a view was adopted by the Punjab High Court in Kaviraj Pandit Durga Datt Sharma's(13) case. The Orissa High Court held the same view when X-ray photographs were supplied by a radiologist in the case of Mr. Golak Behari Mohanty(14). In fact the Supreme Court of India in the case of Commissioner of Sales Tax vs. Suridev considered that the preparation and issue from a medical practitioner's dispensary of medicines would not amount to manufacture, though in that case the simple issue was whether such an activity would amount to manufacture. As pointed out in Benjamin's work on Sales, a document supplied by a solicitor or a an architect did not amount to a sale and constitute the fees received by such solicitor or architect as a sale consideration. Receipts is for actual skill and not as consideration for the ....
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....ut actual administration thereof. Mere charging for blood as separate from other charges does not make the sale of a divisible one, because notwithstanding separate charges, administering service and skill's is automatically implied in the charges of oxygen, blood, anesthesia etc. It is common ground that the appellant does not supply oxygen, blood or anesthetic drugs to any persons other patients of the Hospital. In this context the learned State Representative cited a recent decision of the Supreme Court in the case of District Controller of Stores, Northern Railway vs. Assistant Commercial Taxation Officer(15) which considered that the activity in the selling of unserviceable material and scrap iron by itself may constitute business. But this case is easily distinguishable for more than one reason. It was found by the Supreme Court in that case in the following words : " We also think that there is no fallacy in thinking that the Railway since it is concerned in the activity of transportation is engaged in commerce within the meaning of clause (i) of the definition..........." Definition in this case is the definition of "business" under the Rajasthan Taxation Laws (Amendm....
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....the same. Even assuming that the appellant admitted itself to be a dealer it does not debar the appellant from raising the plea now as long as it can show that is was really not a dealer. There is no estoppel involved. Under the circumstances we must hold that the appellant is not a dealer. On this finding alone, the appellant is entitled to succeed for all the years. However we consider it expedient to consider the alternative contentions also. 14. The next alternative question is whether there has been any sale involved. No doubt a sale did take place in the case of miscellaneous goods such as discarded materials,. But we find that no sale is involved where drugs, oxygen, blood, anesthesia and artificial limbs were supplied. We had referred to the relevant facts even in the proceeding paragraphs. We had found that the drugs are administered or supplied only to patients against prescriptions of the Doctors. Prescription does not contain any reference to patent drugs. They are not supplied to anybody other than the patients. The supplies are not straight out of ready-purchases stock but are usually mixtures made out of general ingredients prescribed in the prescription sheets. A....
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.... if separate charges are collected one for consultation and the other for "medicines". The charge for medicine is also really a charge for medicine is also really a charged for treatment in-as-much as a doctor does not offer the medicine at market rate or at a uniform margin for profit. He does not also offer them to anyone other than patients. The cost of medicine certainly involves compensation for treatment or administration as in the case of injection. In the case of the appellant some costing is done but the ultimate charge is less than the amount for which it is coasted and not more. At any rate we have no doubt that in the light of the facts of the appellant's case, not only drugs but even the supplies of oxygen, anesthesia, blood or artificial limbs are all part of treatment. Th learned State Representative no doubt refers to the ingredients of sale allegedly present especially in respect of drugs. But the first condition of two parties contemplates the relationship between a doctor and a patient. There are no goods, the property in which could be transferred since administration of drugs is only part of treatment and it cannot be compared to sale of drugs by Chemists and D....
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..... At any rate, having held that the appellant is not a dealer and it is not in business, it is immaterial for us to consider whether the sales of discarded materials are sales which are incidental, ancillary or in connection with any business. In this view, we do not go into the break-up of such receipts and give any specific finding, which, in our opinion, is unnecessary in view of our earlier findings. The authorities have merely included all miscellaneous receipts, even if the appellant were a dealer it would have been necessary to show that these receipts are incidental, ancillary or in connection with the appellant's business. 17. The next alternative contention is found to clinch the appellant's claim. There is hardly any scope for controversy. G.O. No. 976 Revenue, dt. 28th March, 1959 lists the miscellaneous exemptions under the old Act alongwith the new exemption under the new Act in 1959. Item No. 2 of such list contains exemption on "sales of medicines by every private medical practitioner owning dispensaries and dispensing medicine to his patients only provided that no consultation fee is charged by him separately". The same Notification exempted receipts from X-rays....
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....pitals, and allied institutions but it will be totally incorrect to say that it is not being run by 'paid medical practitioners". The only argument for making such a preposterous claim is that it is run by an Association and it cannot therefore, be run by "paid medical practitioners". The confusion is between ownership and management. The Notification is concerned only with the later. We have therefore, no doubt that the appellant is exempt on sale of drugs and other goods by the terms of Notification, whether we look to the preamble or not. But it is not necessary for us to ignore the preamble which is styled as order. We do not consider it fair on the part of the learned State Representative to ask us to close our eyes to the preamble and argue both against the spirit and letter of the exemption of all such institutions. It may be seen from the details given in an earlier paragraph that if all supplies of drugs (G.O. No. 21 dt. 5th January, 1965) dieting charges (G.O. 976 dt. 28th March, 1959), artificial limbs (G.O. 21 dt. 5th January, 1965) blood (G.O. 976 dt. 28th May 1959) X-ray (G.O. No. 21 dt. 5th January, 1965) etc. Clearly exempt under the Notifications, are excluded, the....
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....osing penalty was made out." This passage which lays down the basic requirements for levying penalty, is an essential part of Sales Tax Law, Income Tax Law as well as other laws relating to other fiscal offences. A number of citations were given by both the learned State Representative and the counsel for their respective positions. But the basic requirement as mentioned in the above passage remains. The offence should have been either in deliberate defiance of law or the tax payer should have been guilty of contumacious or dishonest conduct or he should have acted in conscious disregard of its obligation. The breach should not be technical or venial and should not have flown form a "bona fide belief", though such belief may be wrong though genuinely entertained. The learned State Representative would say that the appellant had not filed returns and that makes the appellant's commission anything but wilful. But the position in Hindustan Steel Ltd's(16). case is not dissimilar as in that case even registration was not sought nor obtained. It has been held in a number of cases that where a taxpayer rightly or wrongly believes that he is not liable to tax on any part of his turnove....