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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Shailendra Kumar Yadav & Shri Rajesh Kumar
O R D E R Per Rajesh Kumar, Accountant Member
This appeal by revenue is arising out of the order of the CIT(A)– I, Mumbai, dated 30.10.2014, for A.Y. 2010-11. The assessment was framed by the AO u/s. 143(3) of the Income Tax Act, 1961.
The sole issue raised in this appeal is against the grant of exemption u/s. 11 of the Act by the CIT(A) as made by the AO on the facts that the assessee runs a pharmacy store in the hospital for profit and earned profit from pharmacy store and not covered in the charitable activity.
During the course of hearing, the learned counsel for the assessee filed copy of the decision of Hon’ble Bombay High Court in the case of Baun Foundation Trust
National Health & Education Society vs. CCIT (2012) 73 DTR 0045 (Bom) and the copy of the order dated 27.05.2016 of the co-ordinate Bench in the case of Hiranandani Foundation vs. ADIT in ITA Nos.
560 to 563/Mum/2016. It was submitted that the case of the assessee is fully covered by the ratio of the said decisions and, therefore, the appeal of the revenue should be dismissed with cost.
The learned DR fairly agreed with the arguments advanced by the learned counsel for the assessee.
We have heard the rival submissions and perused the material available on record. We find that the AO has treated the sale of medicines from the pharmacy store in the hospital, which is run by the assessee trust, as income from business and held that the said running of pharmacy is not for charitable purposes.
However, the CIT(A) reversed the addition by the AO holding that the running of pharmacy was not a business activity of the assessee as the same was as per the objectives of the trust and , thus, concluded that the application of section 11(4A) was wrong and directed the AO to allow exemption u/s. 11 of the I.T.Act.In our considered opinion the pharmacy store is an integral part of any hospital and can not be treated as business activity. Had the assessee operated a pharmacy store without running a hospital , then the activity would have been classified differently.
We further find that the case of the assessee is fully covered by the order dated 27.05.2016, of the co-ordinate Bench of the Tribunal in the case of Hiranandani Foundation in for A.Y. 2006-07, wherein the issue has been decided in favour of the assessee. The operative part of the said order is reproduced below:
National Health & Education Society
12. Regarding the argument pertaining to whether the pharmacy shop is an integral part of the hospital business, as mentioned above, we have perused the relevant paras from the jurisdictional High Court in the case of Baun Foundation Trust (Supra), which was of course delivered in the context of the provisions of section 10(23C) of the Act and find relevant to extract the relevant para which is as follows: “4. In Aditanar Education Institute Etc. v. Additional Commissioner of Income Tax (1997) 224 ITR 310 (SC), the Supreme Court has observed, while construing the provisions of section 10(22) that the decisive or acid test is whether on an overall view of the matter the object is to make a profit. If after meeting the expenditure any surplus results incidentally from the activity lawfully carried on by the institution, it will not cease to be one existing solely for the statutorily stipulated purpose so long as the object is not to make a profit. Again, it is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Even if the figures which are taken into account by the Chief Commissioner are to be had regard to, it is evident that the activity of a chemist shop is an activity which is incidental or ancillary to the dominant object and purpose which is to run a hospital. The Chief Commisisoner has accepted that the surplus which is earned from the operation of a chemist shop is utilised for the purposes of the hospital. 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 even for philanthropic purposes to have a chemist shop where pharmaceutical products are sold. This is a facility which is intended to be used predominantly by patients and their relatives. Though the members of the general public are not prohibited from using the facility, the crucial question to ask or the test to answer is whether the establishment of a chemist shop is incidental or ancillary to the dominant object and purpose which is to set up an conduct a hospital for philanthropic purposes. As a matter of fact, Section 10(23C) permits the accumulation of income upto a certain stipulated amount over a stipulated period. In our view, the Chief Commissioner of Income Tax has clearly misapplied himself in law by having regard to a clearly ancillary or incidental activity and elevating it to the status of the dominant purpose for which the hospital has been established. Running the chemist shop in the present case is not the dominant object or purpose of the trust. Nor would the figure as disclosed indicate that the nature of the activity has assumed such a dominating or overwhelming importance so as to cast doubt on the true nature and character of the hospital which is conducted by the Petitioner. The Chief Commissioner has acted contrary to the judgments of the Supreme Court which hold the field consequent upon which the impugned order would have to be set aside.
From the above, it is clear that the running of a pharmacy is a necessary requirement for running of a hospital. It is impossisbility from medical point of view that the hospital can run without “pharmacy shop” in the premises of the hospital. Considering the same, the Hon’ble High Court has held that has held that maintenance of a pharmacy shop is ancillary to the dominant object of running of a hospital and thus, it is an integral part of the National Health & Education Society hospital. We noticed, actually the pharmacy shop is being maintained by the hospital itself and not by any private contractor. Drawing the medicine from such pharmacy shop by the Doctors in respect of the patients is also evident from the records, commonly maintained in their medical reports. It is not the case of the revenue that the profits earned on pharmacy was not spent for the objects of trust. Therefore, we find, that the cited judgments (supra) are applicable squarely to the facts of the case so far as the argument relating to if the pharmacy is an integral part of the hospital business or not. Considering the above, we are of the opinion, the conditions of maintenance of books of account in respect of the business activity of trading of medicines, which is an integral part of the hospital activities, is not the requirement of the law on the facts of this case. Thus, we affirm the assessee’s contention that the pharmacy shop is an integral part of the hospital business and the same is not hit adversely by the conditions specified in the provisions of section 11(4A) of the Act. Therefore, so long as the transactions of such pharmacy which ancillary/ incidental for the business of a hospital and objects of the trust, the conditions relating to maintenance of separate books of accounts are met within the meaning of section11(4A) of the Act. Accordingly, grounds raised by the assessee are allowed.” Respectfully, following the ratio laid down in the decision above, we uphold the order of the CIT(A) by dismissing the appeal of the revenue.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on this day of 17th August 2016.