KETY MEDICARE CENTRE,DAHANU vs. ACIT CC-2, THANE, THANE

We heard the rival submission and considered the documents available in records. The revenue authorities have placed reliance on the statement of partner Dr. Attahussain S. Poonawala wherein he has offered the difference in the receipts from the nursing home amounting to Rs. 86,25,000/-.

While filing the return of income, assessee has already declared business receipts of Rs.1,40,15,090/- which is includes the above receipts of Rs. 86,25,000/- and has offered profit @ 8% on the same. In the assessment order, Ld. AO has added the entire receipts as income of the assessee.

The Ld. AR argued that the action of the Ld. AO in adding the entire income is incorrect. In the statement recorded, it was clearly explained that the books of accounts were not complete for the year under consideration and therefore, the entire receipts were not recorded. On direction of the officials, a tentative incomplete profit & loss statement was prepared and presented at the time of survey action. On the basis of the said statement, the partner stated that the receipts of Rs. 86,25,000/- has not been accounted and accordingly, the said receipts were offered.

The assessee has already offered the profit @ 8% on the said receipts and accordingly, the question of any addition cannot arise. Moreover, when the assessee has followed the presumptive taxation scheme u/s 44AD, only net profit @ 8% can be added as income. It is stated by the Ld. AR that the assessee has been offering the profit in the range of 6-11% in the previous and subsequent /Mum/2024 Kety Medicare Centre year which has been accepted by the department. A chart showing the GP chart is as under: - A.Y. Net Profit (In %) 2020-21 9.01% 2019-20 8.90% 2018-19 5.94% 2017-18 11.77% 2016-17 10.15% 2015-16 10.93% However, while adding the entire receipt of Rs. 86.25lakh as income, the net profit of the assessee is almost 84% which is not possible for any business. Accordingly, it is submitted that the action of taxing the entire receipts as income is incorrect.

Without prejudice to the above, it is also submitted that the statement recorded during the survey does not have evidentiary value. In this regard, reliance is placed on the decision of Hon’ble Madars High Court in the case of CIT vs. S. Khader Khan Son, 300 ITR 157, which was later upheld by Hon’ble Supreme Court reported in 25 taxmann.com 413(SC) wherein it was held that statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The relevant part of the said decision is reproduced as under:- “A power to examine a person on oath is specifically conferred on the authorities only under section 132(4) of the Act in the course of any search or seizure. Thus, the Income-tax Act whenever it thought fit and necessary to confer such power to examine a person on oath, has expressly provided for it, whereas section 133A does not empower any Income-tax Officer to examine any person on oath. Thus, in contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement recorded under section 133A /Mum/2024 Kety Medicare Centre of the Act is not given an evidentiary value, vide a decision of the Kerala High Court in Paul Mathews and Sons v. CIT [2003] 263 ITR 101. …………………………………… For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal.”

The Ld. AR argued that addition made purely relying upon the statement recorded during the survey action is incorrect and it is necessary that income should be assessed based on the correct law. In this present case, when it has been explained that the entire receipts cannot be added as per law and based on section 44AD of the Act, the question of adding the same on the basis of statement, is bad in law and incorrect.

In the appellate order, Ld. CIT(A) has relied upon the decision of Hon’ble Bombay High Court in the case of Dedicated health Care service TPA(India) (P.) Ltd. vs. ACIT, 324 ITR 345in order to contend that the services provided by hospital are professional services. In this regard, the reliance placed by Ld. CIT(A) is distinguishable. It is submitted that the issue decided by Hon’ble High Court is limited to the scope of the professional fees for the purpose of sec.194J of the Act. The Hon’ble High Court in this case has held that the services provided by hospital which employs qualified doctors also provide medical professionals which is included within the meaning of professional services u/s section 194J. Accordingly, while making the payment to such hospital, the provision of section 194J of the Act are applicable. The Hon’ble Court has clearly made distinction while rendering the decision that the inclusion of the hospital within the meaning of professional services is limited for the purpose of section 194J and not /Mum/2024 Kety Medicare Centre otherwise. The Court has also taken a cognizance that the medical profession cannot be rendered by a corporate enterprise. It also taken noted that decision of Hon’ble Gujrat High Court in the case of CIT vs. Dr. K. K. Shah 135 ITR 146 (Guj) wherein it was held that where a group of doctors were doing business, the same would come under the ambit of business activity. With such findings, Hon’ble Court held that the hospital which is corporate company in nature, would be covered under the professional services for the limited point of deduction of tax u/s 194J. However, where the doctors were engaged in the business activity, the same cannot be covered as profession.

The assessee firm is earning income only from IPD services, room rent, X- ray charges, etc. whereas the entire OPD income from doctor services were directly shown as income by concerned partners. This fact along with the return of income of partners were filed before Ld. CIT(A). Therefore, as such, no medical professional services income has been shown by the appellant whereas in the decision referred above, the hospital was earning income from doctor services. Therefore, the decision relied upon by Ld. CIT(A) is distinguishable on facts and cannot be relied upon.

Further, reliance is placed on decision of Coordinate Bench of ITAT- Hyderabad in the case of Shalini Hospitals vs. ACIT, 108 ITD 534 wherein the Bench has held that the activities of the nursing home who was rendering IPD services, constituted business and not profession for the purpose of section 44AD of the Act. The relevant part of the decision of ITAT Hyderabad is as under :- 5.3 There is no doubt that the assessee, which is a partnership firm, is a 'person' within the meaning of section 2(31), but the dispute is whether the assessee-firm is 'carrying on business' as contemplated under clause (a); or 'carrying on profession' as contemplated under clause (b) of section 44AB extracted above. According to the assessee, its activities /Mum/2024 Kety Medicare Centre constitute 'business' and hence the limit of Rs. 40 lakhs prescribed in clause (a) above applies. However, since its gross receipts were less than Rs. 40 lakhs, the mandatory requirements of section 44AB of getting the accounts audited, etc. do not apply to it. On the other hand, it is the contention of the Revenue that the activities of a nursing home in providing medical care and nursing required by the patients, which require specialized professional skill and knowledge, constitute 'profession' and as such the ceiling of Rs. 10 lakhs prescribed in clause (b) of section 44AB applies, and consequently, it is liable to comply with the mandatory requirements of getting its accounts audited, etc. as contemplated under section 44AB.

Further, reliance is placed on the decision of Hon’ble Kerala High Court in the case of CIT vs. Upasana Hospital reported 139 CTR 518 (Kerala), wherein the Hon’ble High Court has held that the activity of the running a hospital and diagnostic center would constitute business activity. The relevant part of the Hon’ble High Court decision is as under: - “14. Broadly speaking, all professions are businesses. When a professional man organises an activity which consumes his time and labour in connection with his professional work, either individually or in collaboration with others, it cannot be said that there is no profit motive behind such adventure. When there is an element of profit motive it will be a business activity whether it actually derives profit or not. When a medical practitioner, without confining himself to his conventional function of examining patients and prescribing medicines, establishes an X-ray plant and machinery for augmenting his professional work, it cannot be said that he has no profit motive in such adventure. That means he is carrying on a business activity which attracts the investment allowance under section 32A. This being our view, the reasonings contained in the decisions of the Income-tax Appellate Tribunal in the case of Dr. Vittal Bhat [1983] 6 ITD 560 (Bang) [SB] and of Dr. Surender Reddy [1989] 30 ITD 296 (Hyd) cannot be said to be erroneous. We have observed this because the Tribunal in the present case has placed reliance on those decisions.”

Considering above 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.The Ld. AO in the alleged assessment order made reference to clause 6 of section 44AD of the Act which provides certain /Mum/2024 Kety Medicare Centre exclusion to which provision of section 44AD are not applicable. The clause 6 of section 44AD is reproduced as under:- “(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to— (i) a person carrying on profession as referred to in sub-section (1) of section 44AA; (ii) a person earning income in the nature of commission or brokerage; or (iii) a person carrying on any agency business.”

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 (supra) and Shalini Hospitals (supra), which support this position. Accordingly, the turnover of the assessee firm should not be considered as professional income. The addition of Rs.86,25,000/-, based solely on the partner’s statement, is unwarranted, particularly when the remaining receipts have been treated as business income /Mum/2024 Kety Medicare Centre and the net profit rate has been accepted by the Ld. AO.In this regard, we place reliance on the decision in S. Khader Khan Son (supra). 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. Considering these facts, we find no merit in the impugned appellate order. Accordingly, the addition of Rs.86,25,000/- is quashed.