TaxTMI 
TaxTMI 
2025 (2) TMI 705
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.... "1) The Ld. CIT(A) erred in confirming the denial of exemption by the AO under section 11 in respect of the income of the Pharmacy division. 2) The Ld. CIT(A) failed to appreciate the fact that the pharmacy division of the Trust was an integral part of the Hospital itself, the revenues being that portion of the hospital bill of in-house patients representing value of medicines used for their treatment while admitted in the hospital. 3) The Ld. CIT(A) erred in confirming the addition of the surplus of pharmacy division as business income, by applying the provisions of section 11(4A). 4) The Ld. CIT(A) failed to appreciate that there had never been any denial of exemption in respect of the pharmacy division in the past, thereby violating the principle of consistency. 5) Without prejudice to the foregoing, the Ld. CIT(A) erred in confirming the addition of an amount equal to the total receipts from the pharmacy division, instead of restricting the addition only to the surplus derived from the said division. Denial of exemption for the income from Chemist shop 6) The Ld. CIT(A) erred in confirming the denial of exemption by t....
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....ion), Mumbai vide Registration No.TR/2763 dated 29/08/1975. The Commissioner of Income tax (Exemptions) Mumbai vide letter dated 29/03/2016 considered that the new trust deed of the Assessee-Hospital which was amended on 15/03/2004 has been taken on record and also stated that the registration certificate u/s 12A No.TR 2763 dated 29/08/1975 shall continue to be valid. The case was selected for scrutiny and notice u/s 143(2) of the Income Tax Act was duly served upon the Appellant dated 31.08.2015. Further, notice u/s 142(1) dated 20.06.2016 was issued to the Assessee-Hospital. Assessee-Hospital complied to all the notices and filed details as called for from time to time through its Chartered Accountant and the same were considered by the Ld.AO, however, the Ld.AO was of the opinion that the assessee trust runs a pharmacy store in its hospital premises and therefore, required the assessee trust to show cause as why the surplus out of pharmacy store should not be treated as business income under section 11(4A) and also why the shortfall should not be disallowed and also the actual expenses in Indigent Patient Fund account should not be treated as business income. Against the said sh....
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.... Aggrieved by the order of the Ld.AO, the assessee filed appeal before the CIT(A), who, vide impugned order, upheld the order of the Ld.AO with regard to the addition made on account of pharmacy and chemist division income. Aggrieved by the impugned order, the assessee is in appeal before us. 4. We have heard the Ld.AR as well as the Ld.DR on behalf of the parties and also examined the record. The Assessing Officer has dealt with the issue of pharmacy and chemist division income in para 4.4 to 4.11 of his order and the same are extracted below:- "4.4. Assessee trust has contended that it does not sell drugs to outsiders but charges the amount for drugs used in the treatment for patients entirely as prescribed by treating consultants. These are charge to patient at MRP and form part of final patient bill. Pharmacy store does not sell any medicine to outside patients. In view of this the said surplus may not be taxed as business income as proposed. 4.5. Assessee trust has not submitted any further argument and supporting documents in respect of its claim and defense on this issue. 4.6. Though assessing claims that it does not sell medicines to outside pa....
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....is argument of assessee trust will not be relevant as two main conditions to be fulfilled u/s. 11(4A) are not met by assessee trust. 4.11. In view of above detailed discussion I hold that income of Rs. 15,08,18,086/- out of pharmacy store is treated as business income under section 11(4A) separately and taxed accordingly." 5. During appeal proceedings before the CIT(A), the assessee has raised these issues as grounds 1 & 2 and the same have been adjudicated by Ld.CIT(A) in para 9, which is extracted as below:- "9. Decision on Grounds of Appeal: During the appellate proceedings, Statement of facts, Grounds of appeal, Assessment Order and appellant's submission was carefully scrutinized by the under signed. Grounds 1& 2: It is evident from Para 4.2 and Para 4.9 of the Assessment order that the books of accounts for the Pharmacy/chemist income has not been maintained by the appellant. The appellant has neither disputed nor produced any documents or submissions in their regard. The second condition of Section 11(4A) clearly requires maintaining of separate books of accounts for claiming exemption. The case laws quoted by the appellant does not comes to the....
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....rdinate bench of Mumbai Tribunal in above appeal was similar to the issue in this case. We have examined the order of the Ld.co-ordinate bench in ITA No. 6853/Mum/2014 for A.Y. 2010-11 (supra) wherein the grounds No.3 & 4 were similar to the grounds raised by the assessee-appellant and the said grounds have been adjudicated in favour of assessee and the appeal of the revenue was dismissed and the findings of the co-ordinate bench on these grounds in paras 7 to 9 are relevant and extracted as under:- "7. The brief facts relating to the issues raised vide ground Nos.3 & 4 are that the assessee hospital which is registered as a charitable trust under section 12 of the Act also runs a pharmacy store in the hospital. The AO noted that the turnover of the assessee's pharmacy store was very high which was around 13.18% of the total hospital collections from inpatient and outpatient profit from the pharmacy store came at 17.18% of its turnover. The AO assessed the income from the pharmacy store as business income by way of invoking provisions of section 11(4A) of the Income Tax Act observing that the receipts from the pharmacy were separate from the charitable activity of the asse....
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.... "Hiranandani Foundation vs. ACIT (E), Mumbai" wherein the Tribunal has discussed the identical issue. The AO in the said case (supra) had made additions invoking provision of sub section (4A) of section 11 and observing that the assessee hospital had failed to maintain the separate books of accounts for the business of pharmacy. The Tribunal, after considering the relevant submissions of both the parties, observed from the language used in section 11(4A) and section 10(23C) that since the pharmacy business run by the hospital was not an independent business activity and in fact the same constitutes an integral part of the running of hospital and the assessee has undisputedly maintained the books of accounts for the hospital, hence the assessee fulfils the condition of maintaining the separate books of accounts for the integral business activity of the running of a hospital including pharmacy shop. The co-ordinate bench of the Tribunal, thus, has held that the running of pharmacy which was the necessary requirement of running a hospital and for providing timely medical aid to the patients, thus, was not only incidental but was integral part of the objects of the assessee trust and ....
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.... CIT 60 Taxman 248 (SC) 10. On examination of the relied judgements, we are of the considered view that most of the judgements have been mentioned in the order of the co-ordinate bench and the Hon'ble High Court referred supra. Therefore, we do not find any need to separately consider those judgements on the issue before us. 11. The Ld.DR, on the other hand, while supporting the decision of the Ld.CIT(A) has submitted that the Chemist shop can be considered as an integral part of the hospital but running of the pharmacy, in all probabilities, is a separate & independent business activity carried on by the hospital and cannot be considered as an integral part of the assessee hospital and since the separate accounts have not been maintained, therefore, the provisions of section 11(4A) are attracted. 12. In rebuttal to the contentions of the Ld.DR, the Ld.AR has taken us to the case of Hon'ble jurisdictional High Court in Pr.CIT(E), Mumbai v. National Health and Education Society (supra) and has submitted that the findings from paras 14 to 21 of the Hon'ble High Court are relevant wherein similar issue has been dealt with and decided in favour of the assessee. To appreciate t....
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.... and thereafter to tax the income accrued therefrom. 18. In Aditanar Educational Institution (supra), Supreme Court was considering exemption granted to an educational institution under section 10(22) of the Act. As per section 10(22) of the Act, any income of an university or other educational institution existing solely for educational purposes and not for purposes of profit is not to be included in the total income of the previous year of any person. In the facts of that case, Supreme Court held that after meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. 19. In Baun Foundation Trust (supra)where exemption under Section 10(23C)(via) of the Act was in question, this Court referred to the decision of the Supreme Court in Aditanar Educational Institution (supra)and held that a hospital must of necessity have a section or department where medicines can be dispensed and it is not uncommon for a medical hospital which exists for philanthropic purposes to have a chemist shop wh....
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....o extract the provisions of section 11(4A) as well as section 10(23C)(via) of the Act:- Section 11(4A): "11(4A) Sub section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." Section 10(23C)(via) "10(23C) any income received by any person on behalf of - (i) to (vi)xxxxxxxxxxxxxxxxxxxxxxxx (via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philantyhropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the *Principal Commissioner or Commissioner+;" 15. During arguments, the Ld.AR has subm....
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.... involved in the advancement of the objects of the general public utility. The Appellant hospital is engaged in providing medical relief." 16. On the basis of these written submissions, it was orally submitted by the Ld.AR that the case relied upon by the assessee in DCIT(Exemjption) vs Jaslok Hospital And Research Centre (supra) is applicable in the case of the assessee also notwithstanding approval under section 10(23C) is not sought by the appellant assessee. The Ld.AR pointed out that Fifth Proviso to Explanation 5 of the Third Prviso to section10(23C) is similar to section 11(4A) and, therefore, the ratio of the judgment of ITA 1920 of 2017 referred (supra) is available and applicable in the case of the assessee as the facts and circumstances of the assessee case are also similar and fully covered by the judgement of the Hon'ble High Court. We have examined the 5th Proviso to Explanation 5 of 3rd Proviso to section 10(23C) of the Act, which is as under:- 10(23C) "10(23C) any income received by any person on behalf of - (ii) to (vi)xxxxxxxxxxxxxxxxxxxxxxxx (via) any hospital or other institution for the reception and treatment of persons suffering ....
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....cability of the case of the jurisdictional High Court in Jaslok Hospital And Research Centre ITA 1920/2017 (supra) on the basis of dissimilarity of facts, does not hold water. 18. During arguments, the Ld.DR has made a submission that the assessee has not brought on record any documents/material to show that the surplus of the pharmacy business income has been spent for the philanthropic purpose of the trust. For this, once again, the Ld.AR submitted that the assessee hospital had always been spending this surplus income from the pharmacy division for the philanthropic purpose of the trust. Moreover, in case there is any violation of registration under section 12A of the Act by the Trust, the revenue authorities are always at liberty to take action as permitted by law in case it is found that the assessee is not spending the surplus funds for philanthropic purpose of the trust/hospital. 19. On the basis of the above discussion, we are of the considered opinion that the case of the assessee hospital is very well covered by the judgement of the co-ordinate bench in the case of Asst.Director of Income Tax (Exemption)-II(1), Mumbai vs M/s Jaslok Hospital & Research Centre in ITA ....
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....he Assessee is running a Hospital and also having in-house patient's facilities, therefore, the medicines are essentials for the treatment of in-house patients especially. The Assessee is also giving treatment to out-patients, and therefore out-patients and even outsiders as well, are at their liberty/option to purchase the medicines from the Assessee's Pharmacy store, as there cannot be any restriction. The Assessee may be on commercial basis but in fact, directly-indirectly providing medical relief by selling medicines to the in-house patients and outpatients and outsiders as well and therefore protected by CBDT Circular (supra) as well. It is also not the case here that the Assessee has established Chemist/Pharmacy store exclusively for outpatients/outsiders and has utilized surplus from the operation of a chemist shop, for other objects than the prescribed objects. Hence on the aforesaid analyazations, we don't have any hesitation to hold that running of the chemist shop is not only essential but also incidental or ancillary to the dominant object and purpose to run a hospital and thus the Assessee has complied with first condition of section 11(4A) of the Act. 7.6 Com....