DCIT (E) 1(1), MUMBAI vs. KARUNA MEDICA SOCIETY, MUMBAI

The only issue in this appeal of the Revenue is against the order of the CIT(A) holding that the activities of running a pharmacy shop is incidental to the attainment of the objects of the trust and its income is eligible for examination u/s 11 of the Act. For these Revenue has raised following three grounds: - “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), Mumbai erred in allowing the pharmacy shop’s income u/s 11 (4A) of the Income - Tax Act, and held that activity of running a pharmacy shop is incidental to the attainment of the objects of the trust as rue/I as run ii lug s/lop is Hot a planned activity, though assessee is patting VAT on sales, With an intention ion of earning income side by side 2. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), Mumbai is justified in allowing claim of the assessee for exemption it/s 11 by ignoring the fact that the Assessing Officer in his order has pointed out that the assessee runs a pharmacy store in its hospital for profit motive and wit/mitt approaching facts that the assessee's profit from the Pharmacy Store is Rs. 1,74,08,3071- and gross receipts of assessee society are Rs. 2,65,82,7991- including of pharmacy surplus.

Briefly stated facts are that the assessee is a registered trust u/s 12A of the Act and claiming exemption u/s 11 of the Act. The AO while completing the assessment u/s 143(3) of the Act brought the receipts from pharmacy store at Rs. 1,74,8,310/- to tax. The assessee contested taxability of receipts of pharmacy / medical store and this is the only issue for adjudication.

AT the outset, the learned Counsel for the assessee stated that the issue is covered by the Tribunals decision in assessee’s own case for A.Y. 2010-11 and 2011-12 in vide order dated 14-12-2015, wherein, it is held as under: - “If the aforesaid provisions is analyzed, sub-section (4A) says that sub-section (1) or sub- section (2) or sub-section (3) or Sub-section (3A) shall not apply in relation of any income of a trust or any institution, being profit & gains of business, unless the business is incidental to the attainment of the objective of the trust or, as the case may be, institution, and separate books of accounts are maintained by such trust or institution in respect of such business. Section 11(4A) was inserted by the Finance Act, 1983 w. e. f. 01/04/1984, in relation to any income being profit & gains of any business, unless (a) the business is carried on by the trust wholly for public religious purposes/charitable purposes and is carried out. It has been further elaborated in the departmental Circular NO.372 dated 08/12/1983 and further discussed in CIT vs Thanthi Trust (2001) 247 ITR 785, 795 (SC) holding that section 11(4A), as is stood from A.Y. 1984-85 to 1991-92, restricted the benefit so that it was not available for income derived from business unless the conditions contemplated in clauses (a) & (b) are satisfied. It is pertinent to note that by section 11(4A), the benefit due to an assessee in case of an income from a business held interest is extended to an income from a business carried on by it on its satisfying the conditions laid down the under clauses (A) & (b) of the section (CIT vs Dharmodayam COMPANY (1997) 225 ITR 686, 692 (Kerala), wherein, the assessee was held to be entitle to claim exemption u/s 11(1) of the Act. In respect of the income from Kury business, which itself was held in trust by the assessee. This decision was set-aside by Hon’ble Apex Court in (2001) 248 ITR 816 (SC). In DIT vs Bombay Billion Association Dharma NO Kanto Trust (2002) 254 ITR 708 (Bom.), wherein, the general public. was beneficiary, therefore, the Hon’ble jurisdictional High Court held that since there was substantial compliance of section 11(4A)(b), therefore, the trust was entitled to exemption. Identical ratio was laid down in DIT (E) vs Shilpam (1998) 230 ITR 126 (Cal.). As a result of substitution by the Finance No.(2) Act, 1991 w. e. f 01/04/1992, the provisions of section 11(1) or 11(2) or 11(3) or 11(3A) shall not apply for and from A.Y. 1992-93 in relation to any income of the trust or any institution, being profit & gains of business unless (a) the business is incidental to attainment of objective of the trust or the institution as the case may be and (b) separate books of accounts are maintained by such trust or institution in respect of such business. In ACIT vs Thanthi Trust (2001) 247 ITR 785 (SC), affirming Thanti Trust vs ACIT (1999) 238 ITR 635 (Mad.) it was held that the scope of section 11(4A) operative for and from A.Y. 1992-93, is more beneficial to a trust of institution then was the scope of section 11(4A), as it was operative for A.Y. 1984-85 to 1991-92. Section 11(4A), as it stand for and from A.Y. 1992-93, all that is required for the business income of a trust or a institution to be exempt from a tax is that the business Page 2 of 4 should be incidental to the attainment of the objectives of the trust or institution. In view of the matter, the trust was held to be entitled to exemption as the business of the trust was incidental to the attainment of the object of the trust. If the language used in the section is kept in juxtaposition with various decisions, it can be said that the dominant nature of the purpose for which the trust exist has to be considered. The ratio laid down in Aditanar Educational Institution etc. vs Addl. CIT 224 ITR 310 (SC) wherein, the Hon’ble Apex Court, while construing the provisions of section 10(22) observed the decisive or acid test is whether on an overall view of the matter, the object has to be considered. Identically, Hon’ble jurisdictional High Court in Baun Foundation Trust vs Chief Commissioner (2012) 251 CTR (Bom) 237, wherein, identically, the activity of chemist of was held to be incidental or ancillary to the dominant object and purpose to run a hospital. The Hon’ble Court held that running a chemist shop is not the dominant object for the purpose trust, therefore, the assessee’s application was allowed u/s 10(23C) (via) of the Act, by holding that application of approval cannot be rejected on the ground that running of a shop in the hospital is incidental for the purposes of the hospital. In the present appeal also, the chemist shop is part and partial of the hospital being incidental/ancillary to achieve the objects of the hospital, therefore, following the aforesaid decisions and also the case of Franciscan Sisters of St. Joseph’s Society (ITA No.1897/MDS/2013) order dated 06/01/2014, wherein, running of pharmacy by the assessee society as integral part of running a hospital, ratio laid down in DIT (E) vs Agri-horticulture Society (2005) 273 ITR 198, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals), more specifically when the pharmacy shop is integral part and partial of the hospital. We affirm the same.” This order of the Tribunal was also followed in A.Y. 2012-13 in vide order dated 09-09-2016. On query form the Bench, the learned Sr. DR conceded the position and agreed that this issue is covered.

After going through the facts and circumstances of the case and going through the orders of the Tribunal in assessee’s own case in earlier years cited (supra), we confirm the order of CIT(A) allowing of exemption u/s 11 of the Act on the receipts of pharmacy store being activities of running a pharmacy is incidental to the attainment of the objects of the Trust. Appeal of the Revenue is dismissed.

In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 09-01-2017.