DCIT (3) 2(1), MUMBAI vs. NATIONAL HEALTH & EDUCATION SOCIETY, MUMBAI

The captioned appeal by revenue for Assessment Year [AY] 2012- 13 assails the order of the Ld. Commissioner of Income-Tax (Appeals)-1 [CIT(A)], Mumbai, Appeal No. CIT(A)-1/IT/E-II(164)/2014-15 dated 27/01/2016 qua relief provided to the assessee against pharmacy shop’s income in terms of Section 11(4A). The assessment for impugned AY ITA.No.1958/Mum/2016 National Health & Education Society Assessment Year-2012-13 was framed by Ld. Assistant Commissioner of Income Tax (Exemption)- 2(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 05/03/2015. 2.1 Facts leading to the same are that the assessee being association of persons (Trust) was assessed u/s 143(3) at Rs.16,73,87,860/- after certain adjustments / disallowances as against returned deficit of Rs.17,60,14,128/- filed by the assessee on 24/09/2012. The Trust was registered u/s 12A with DIT (Exemptions) and also registered with Charity Commissioner Bombay. Accordingly, it claimed exemption u/s 11 of the Income Tax Act, 1961. 2.2 During Assessment proceedings, it was noted that the assessee trust was running a pharmacy shop in the hospital and achieved turnover of Rs.42.83 Crores with net surplus of Rs.16.73 Crores which translated into profit rate of 39.07%. The turnover of the shop constituted about 12.82% of total hospital collections. The income from the shop, in the opinion of Ld. AO, constituted business income of the assessee in terms of Section 11(4A). The assessee defended the same on the ground that drugs were supplied only to in-patients upon consultant’s prescription and the charges of the drugs formed part of final patient bill. However, Ld. AO noted that the Trust Deed did not bar the hospital from selling medicines to outsiders and the activity of pharmacy shop was systematic business activity. The Ld. AO further noted that the trust was not maintaining separate books of accounts for the shop. Finally, the net surplus of Rs.16.73 Crores earned from the shop was assessed as business income against which exemption u/s 11 was denied to the assessee on the premises that the shop was not incidental to attainment ITA.No.1958/Mum/2016 National Health & Education Society Assessment Year-2012-13 of objectives of the trust and the assessee failed to maintain separate books of accounts for the same. The Ld. AO also placed reliance on the observation of Hon’ble Bombay High Court order dated 25/08/2014 made in writ petition Nos. 1197/2014 & 1198/2014 filed by the assessee challenging the reopening notices issued u/s 148 for AY 2006-07 & 2008-09.

Aggrieved, the assessee contested the same successfully before Ld.CIT(A) vide impugned order dated 27/01/2016 where Ld. CIT(A) relying upon the order of its predecessor in AY 2010-11 & 2011-12 allowed the appeal of the assessee on the premises that operation of the pharmacy shop was intrinsic to the activities of the assessee and not incidental and did not constitute business and therefore, the provisions of Section 11(4A) were not applicable. The Ld. CIT(A) also noted the observation of Hon’ble Bombay High court made in subsequent order dated 29/09/2014 in review petition filed by the assessee. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR] contested the findings of Ld.CIT(A) on the ground that the assessee failed to maintain separate books of accounts for pharmacy shop and therefore, failed to fulfill the conditions envisaged by Section 11(4A). Per Contra, Ld. counsel for Assessee [AR], placing reliance on the stand of Ld. CIT(A) contended that the provisions of Section 11(4A) were not, at all, applicable since the shop activity was intrinsic part of the charitable activity being carried out by the assessee and formed part and parcel of the same. Our attention is drawn to the order of this Tribunal rendered in assessee’s own case