DY COMMISSIONER OF INCOME TAX(E)-1(1), MUMBAI, MUMBAI vs. M/S KARUNA MEDICAL SOCIETY, MUMBAI

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ITA 1049/MUM/2022Status: DisposedITAT Mumbai27 July 2022AY 2016-174 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that running a pharmacy is an activity incidental or ancillary to the dominant object of running a hospital, following established judicial precedents. Therefore, the surplus from the pharmacy should not be taxed separately.

What were the facts?

The assessee, a charitable society running a hospital, also operated a pharmacy. The Assessing Officer treated the pharmacy's surplus as taxable income, considering it a commercial activity not incidental to the society's objectives. The CIT(A) granted relief to the assessee.

What were the issues?

Whether the income generated from running a pharmacy by a charitable hospital is taxable as a commercial activity or is considered incidental to the charitable purpose.

Which sections of the Income-tax Act were involved?

Section 11(4A),Section 11,Section 12A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, ‘H‘ BENCH

Before: SHRI M.BALAGANESH & SHRI RAHUL CHAUDHARY

For Appellant: Ms. Aarti Vissanji & Shri Kashyap
For Respondent: Shri Vivek Anand Ojha
Hearing: 27/07/2022Pronounced: 27/07/2022

आदेश / O R D E R PER M. BALAGANESH (A.M):

1.

These appeals in 1049/Mum/2022 & 1050/Mum/2022 for A.Y.2015-16, 2016-17 & 2017-18 arise out of the order by the ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) in appeal No.CIT(A)-1, Mumbai/10206/2017-18, CIT(A)-1, Mumbai/10716/2018-19 & CIT(A)-1, Mumbai/10535/2019-20 respectively dated 19/03/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 22/11/2017, 13/12/2018 & 05/12/2019 respectively by the ld. Dy. Commissioner of Income Tax (Exem.)I(1), Mumbai (hereinafter referred to as ld. AO).

Identical issues are involved in all these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience.

2.

The only effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in treating the running of a pharmacy as an activity incidental to the attainment of the objectives of the assessee society which is running a hospital in terms of Section 11(4A) of the Act in the facts and circumstances of the instant case.

3.

We have heard the rival submissions and perused the materials available on record. At the outset, we find that the ld. AO had sought to treat the conduct of the assessee in running a pharmacy on commercial basis. The ld. AO on perusal of the financials of the pharmacy and the assessee society on overall basis observed that the surplus earned in pharmacy contributed substantially to the overall surplus earned by the assessee society. He also observed that the pharmacy sells medicines to outsiders also. With these observations, the ld. AO concluded that assessee society running a pharmacy is not an activity incidental to the attainment of the objectives of the society and sought to bring to tax the surplus earned by pharmacy alone on commercial basis.

3.1. We find that the ld. CIT(A) had granted relief to the assessee based on orders passed by this Tribunal in assessee’s own case for A.Yrs 2010- 11 to 2013-14, wherein the same issue has been addressed by this Tribunal in favour of the assessee. The ld. DR before us vehemently argued that the Tribunal order is not accepted by the Revenue and the department has preferred further appeal to the Hon’ble Bombay High Court and the same are pending. It is not in dispute that assessee is a charitable trust duly registered u/s.12A of the Act and entitled for exemption u/s.11 of the Act. It is not in dispute that the main objective of the assessee trust is education and medical relief to the public at large, interalia among others. We find that the issue in dispute is no longer res integra in view of the decision of this Tribunal for A.Yrs 2010-11 and 2011-12 in the case of assessee in and ITA No.4307/Mum/2015 respectively dated 14/12/2015 wherein by placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs. Thanthi Trust reported in 247 ITR 785; decision of Hon’ble Jurisdictional High court in the case of DIT vs Bombay Billion Association Dharma NO Kanto Trust reported in 254 ITR 708; decision of Hon’ble Calcutta High Court in the case of Aditanar Educational Institution vs. Addl. CIT reported in 224 ITR 310 and the decision of the Hon’ble Jurisdictional High Court in the case of Baun Foundation Trust vs. CCIT reported in 251 CTR (Bom) 237. We find that the Hon’ble Jurisdictional High Court decision referred to supra in the case of Baun Foundation Trust squarely addresses the issue in dispute before us wherein it was held that the activity of Chemist / Pharmacy was held to be incidental or ancillary to the dominant object or purpose for running a hospital.

Respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in the instant case. Accordingly, the grounds raised by the Revneue are dismissed.

4.

In the result, appeals of the Revenue are dismissed.

Order pronounced in open Court on 27/07/2022

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