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TaxTMI 
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2024 (11) TMI 151
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....The impugned orders are emanated from the order of the Learned Assistant Commissioner of Income-tax (Exemption)-11(2) (in brevity the 'ld. AO") order passed under section 143(3) / 147 of the Act, date of order 28/03/2014 for A.Ys. 2006-07 & 2008-09, the Ld.ACIT (Exemption), Circle-1(1), Mumbai, order passed under section 143(3) dated 30/03/2016 for A.Y. 2013-14, ld. DCIT(Exemption)-1(1), Mumbai, order passed under section 143(3), date of order 18/12/2017 for A.Y. 2015-16 and ld. ACIT(Exemption), Circle-1, Mumbai, order passed under section 143(3), date of order 24/12/2018 for A.Y. 2016-17. 2. All the appeals have same nature of facts and have common issue. Therefore, we heard all the appeals together and are disposed of by this common order. The appeal of revenue ITA No.2462/Mum/2024 for AY 2006-07 is taken as lead case. The revenue has raised the following grounds of appeal: - ITA No.2462/Mum/2024 - Appeal by Revenue - A.Y. 2006-07 "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in not treating surplus of Rs.1,60,49,150/- arising out of pharmacy store in the assessee hospital, to be business income u/s 11(4A) of the Income Tax Ac, 1961.....
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.... ('I&WS Patient Fund') by the assessee, when the said amount was not utilized by the assessee during the year?" 5. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was correct in allowing the deduction of 15% from the gross receipts u/s 11(1)(a) of the Income Tax Act, 1961, when there was no surplus available during the year for accommodation?" 3. The brief facts of the case are that the assessee is a charitable trust established solely for the purpose of establishing, running, and managing hospitals for medical relief and medical research centre. The object of the institution is to run solely for delivering treatment to persons suffering from illness of mental defectiveness and to attend persons requiring medical help. The hospital is run by the assessee trust, fulfills its objects of giving needy and medial help without considering the caste and creed of the people. The assessee is running a medical shop within the hospital to serve the patients for quick support of the medicine. Other than the patients admitted in the hospital, outsiders are not getting the service from medical shop. During the assessment proceedings, the ld.AO has taken the surplus of....
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....e and distinct activity. Further for inpatients, the medicines administered to them is separately charged in the overall bill raised and is considered as sale from pharmacy. By submitting this, the assessee reiterates that running pharmacy is part and parcel of its activity. Further, it also submits that the medicines administered to the patients is separately charged in the overall hill raised and is considered as sale from pharmacy. In this regard, when bill of medicine is separately charged in the overall bill rained and the same is considered as sale of pharmacy then the assessee could not suffice that why the assessee is not in a position to separate books of accounts for the income of pharmacy. This proves that the assessee by not maintaining the separate books of accounts and not providing the department the separate income and expenditure account, just tends to avoid the payment of tax." 5. The ld.AR vehemently argued and filed a written submission which is kept in the record. The ld.AR argued that the medicine shop is an integral part of the hospital which provides the medicine to the admitted patients and not the outsiders. The activity of maintaining the medical shop ....
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....table activity of the assessee. 8. In appeal, the Ld. CIT(A) observed that the pharmacy run by the hospital was integrally attached to the activities done by the trust/hospital of providing medical relief which term has been included in the definition of charitable purposes as defined under section 2(15) of the Income Tax Act. He, therefore, held that the AO had reached to erroneous conclusion of treating the receipts from pharmacy as separate business income of the assessee. He therefore deleted the addition made by the AO on this issue. 9. Before us, the Ld. A.R. of the assessee has explained that the hospital is not running the pharmacy separately for any outside patient, but running of pharmacy is very much integral part of the activity of medical treatment. He has further submitted that providing drugs to the patients is an indispensible part of the objective of providing medical relief to the patients. The activity of timely providing/making available life saving drugs by the hospital to the patients is in furtherance of its objects of medical relief which otherwise also contributes in saving the life of patients by making available the treatment and medicines without los....
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....the assessee trust and thus was not hit by the provisions of section 11(4A) of the Act. The above decisions of the Hon'ble Bombay High Court and of the co-ordinate bench of the Tribunal are squarely applicable to the case of the assessee. In view of this, we do not find any merit in the ground nos.3 & 4 raised by the Revenue." 5.3.2 Further, the department challenged this order of ITAT before the Bombay High Court. The Hon'ble Bombay High Court vide order dated 09.06.2022 has decided the appeal filed by the department as under: - "5. As regards the second issue, i.e., Pharmacy/Chemist Shop run in the Hospital premises of the Respondent -Assessee, the Tribunal had followed the decision of this Court in case of Baun Foundation Trust vs. Chief Commissioner of Income-tax - [2013] 33 taxmann.com 677 (Bombay). The Tribunal has also referred to other decisions of the coordinate benches of the Tribunal. The Division Bench of this Court has taken a view that if on the analysis of fact, it is found that running of Pharmacy/Chemist Shop is not a predominant activity of the Trust and is incidental to dominant object, the Pharmacy cannot be considered as an independent unit. On factual ....
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....tly claimed deficit amount to Rs. 30.20 crore is not justified. The deduction should be allowed only to the extent of Rs. 15,60,02,346/-. 7. The Ld.AR argued and relied on the impugned appeal order, paragraph 10. 4.2& 10.4.3. which is reproduced as below: - "10.4.2 I have considered the appellant's submission and decisions relied upon. The Hon'ble Supreme Court in the case of CIT vs. Programme for community Organisation (116 taxman 608) has held as under-. "Section 11(1)(a) reads thus: "11. Income from property held for charitable or religious purposes.- (1)(a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;" 4. Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the pr....
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....discussed) 14,79,04,067 - ' 15,60,02346 Less: Deduction u/s.11(1)(a) @15% on receipts excluding pharmacy receipts of Rs.1,60,14,25,610/- i.e.Rs.24,02,13,842/- restricted to income available I (1,89,04,85,591-28,90,59,981=1,60,14,25,610)' 15,60,02,346 I INCOMEFROMPROPERTYOFTRUST NIL II INCOME FROM BUSINESS i.e. Pharmacy Stores (as discussed) ' 4,79,04,067 TOTALINCOME 4.79.04,067 TOTALINCOME(Rounded off to) 479,04,070 9. We heard the rival submission and considered the documents available in the record. We find that the claim of deduction U/s 11 on surplus of medical store is duly covered by the judicial decision. The activity of medical facility and hospital are achieving the object of medical relief. The ld. AO treated the activity of the pharmacy store is nature of business. The separate books of accounts are cardinal requirement for running pharmacist store u/s 11(4A) of the Act. The ld.AO mention in argument that the maintenance of medical shop is incidental towards activity of the assessee. The pharmacy store is only serving to the admitted patient not t....