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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI SANJAY GARG & SHRI G.S. PANNU
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 22.08.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The Revenue has taken the following grounds of appeal: “1. Whether, on the facts and in the circumstances of the case and in law the Hon'ble Tribunal was right in upholding the order of the Id. CIT(A) whereby the Id. CIT(A) allowed the claim of depreciation of Rs 17,03,87,827/-, relying on the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Services reported at 264 ITR 110 (Bom) ignoring the ratio of Hon'ble Supreme Court judgments in the case of Escorts Ltd vs. Union of India (199 ITP 43) wherein Hon'ble Supreme Court has held that double deduction cannot be presumed if the same is not specifically provided by law, in addition to normal deduction.
2. Whether on the facts and in the circumstances of the case and in law the Hon'ble Tribunal was right in upholding the order of the Ld CIT(A), when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case of Lissie Medical Institutions vs CIT 76 DTR (Ker) 372 has decided 2 M/s. Jaslok Hospital & Research Centre the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd (199 ITR 43). 3 Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the claim of the assessee for exemption u/s. 11 by ignoring the fact that the Assessing Officer in his order has pointed out that assessee runs a pharmacy store in its hospital for profit motive and without approaching facts that the profit of pharmacy stores come at 17.18% of its turnover and turnover of pharmacy stores has around 13.18% of total hospital collection from inpatient and outpatients".
4. Whether, on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in allowing the claim of the assessee for exemption u/s. 11 ignoring the fact that assessee has not maintained separate books of accounts in respect of pharmacy store thus, the assessee has not complied with that particular condition as required under the law.
5. The appellant prays that the order of the Commissioner of Income Tax (Appeals)-1, Mumbai be set aside and that of the Assessing Officer be restored.
6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” Ground Nos.1 & 2 3. The brief facts relating to the above grounds are that the Assessing Officer (hereinafter referred to as the AO) during the assessment proceedings noted that the assessee hospital, a registered charitable trust, had claimed depreciation of Rs.17,03,87,827/- on capital assets, expenditure in respect of which has already been claimed by the assessee as application of income. The AO disallowed the claim of depreciation observing that it would amount to double deduction.
The Ld. CIT(A), however, relying upon the decision of the Hon’ble Jurisdictional Bombay High Court in the case of “CIT vs. Institute of Banking Personnel Selection” (2003) 264 ITR 110 (Bombay) held that a trust can claim depreciation on assets, even if, cost of assets has been fully allowed as application of income under section 11 in past years. Being aggrieved, the Revenue has come in appeal before us.
The Ld. A.R. of the assessee has brought our attention to a recent decision of the Hon’ble Jurisdictional Bombay High Court in the case of 3 M/s. Jaslok Hospital & Research Centre “Director of Income Tax (Exemption) vs. M/s. G.D. Birla Medical Research and Educational Foundation” ITA Nos.2294 & 2295/2013 vide order dated 01.02.16.
We find that the question of law framed by the Hon’ble Bombay High Court in the above stated case is identical to the grounds 1 & 2 taken by the Revenue in this appeal. The Hon’ble Jurisdictional Bombay High Court while relying upon another decision of the Hon’ble Bombay High Court in the case of “CIT vs. Institute of Banking Personnel Selection” (supra) and in another case of “DIT(E) vs. GKR Charities (32 Taxmann.com 208) and further in the case of “CIT-II Thane vs. M/s. Jawaharlal Nehru Port Trust” and ITA No.1043/2013 vide order dated 08.06.2015 and in the case of the “DIT (E) vs. Watch Tower Bible & Trust Society of India” ITA No.1548/12 decided on 10.12.2014 has concluded that there is no question of double deduction in allowing the depreciation in respect of assets acquired and used by the trust. In view of the above decision of the Hon’ble Jurisdictional Bombay High Court, the ground nos.1 & 2 of the Revenue’s appeal are hereby dismissed.
Ground Nos.3 & 4 7. The brief facts relating to the issues raised vide ground Nos.3 & 4 are that the assessee hospital which is registered as a charitable trust under section 12 of the Act also runs a pharmacy store in the hospital. The AO noted that the turnover of the assessee’s pharmacy store was very high which was around 13.18% of the total hospital collections from inpatient and outpatient profit from the pharmacy store came at 17.18% of its turnover. The AO assessed the income from the pharmacy store as business income by way of invoking provisions of section 11(4A) of the Income Tax Act observing that the receipts from the pharmacy were separate from the charitable activity of the assessee.
4 M/s. Jaslok Hospital & Research Centre 8. In appeal, the Ld. CIT(A) observed that the pharmacy run by the hospital was integrally attached to the activities done by the trust/hospital of providing medical relief which term has been included in the definition of charitable purposes as defined under section 2(15) of the Income Tax Act. He, therefore, held that the AO had reached to erroneous conclusion of treating the receipts from pharmacy as separate business income of the assessee. He therefore deleted the addition made by the AO on this issue.
Before us, the Ld. A.R. of the assessee has explained that the hospital is not running the pharmacy separately for any outside patient, but running of pharmacy is very much integral part of the activity of medical treatment. He has further submitted that providing drugs to the patients is an indispensible part of the objective of providing medical relief to the patients. The activity of timely providing/making available life saving drugs by the hospital to the patients is in furtherance of its objects of medical relief which otherwise also contributes in saving the life of patients by making available the treatment and medicines without loss of time. The Ld. A.R. has further brought our attention to the recent decision of the Hon’ble Bombay High Court in the case of “Baun Foundation Trust vs. Chief Commissioner of Income Tax” (2013) 33 taxmann.com 677 (Bombay), wherein, the Hon’ble Bombay High Court has held 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. This is a facility which is intended to be used predominantly by the patients and their relatives. The Hon’ble Bombay High Court (supra) observed that where the running of a chemist shop was not the dominant object or purpose of the trust and where the surplus, which was earned from the operation of a chemist shop in the hospital, was utilized for the purpose of hospital and the establishment of a chemist shop in the hospital is incidental or ancillary to the dominant purpose of the trust/hospital, then, under such circumstances, exemption on this ground cannot be denied to a charitable trust under the provisions of section 5 M/s. Jaslok Hospital & Research Centre 10(23C)(via) of the Income Tax Act. The Ld. A.R. has further invited our attention to a recent decision of the co-ordinate bench of the Tribunal in the case of “Hiranandani Foundation vs. ACIT (E), Mumbai” wherein the Tribunal has discussed the identical issue. The AO in the said case (supra) had made additions invoking provision of sub section (4A) of section 11 and observing that the assessee hospital had failed to maintain the separate books of accounts for the business of pharmacy. The Tribunal, after considering the relevant submissions of both the parties, observed from the language used in section 11(4A) and section 10(23C) that since the pharmacy business run by the hospital was not an independent business activity and in fact the same constitutes an integral part of the running of hospital and the assessee has undisputedly maintained the books of accounts for the hospital, hence the assessee fulfils the condition of maintaining the separate books of accounts for the integral business activity of the running of a hospital including pharmacy shop. The co-ordinate bench of the Tribunal, thus, has held that the running of pharmacy which was the necessary requirement of running a hospital and for providing timely medical aid to the patients, thus, was not only incidental but was integral part of the objects of the assessee trust and thus was not hit by the provisions of section 11(4A) of the Act. The above decisions of the Hon’ble Bombay High Court and of the co-ordinate bench of the Tribunal are squarely applicable to the case of the assessee. In view of this, we do not find any merit in the ground nos.3 & 4 raised by the Revenue.
Ground Nos.5 & 6 are general in nature and do not require any adjudication.
In the result, we do not find any merit in the appeal of the Revenue and the same is hereby dismissed.
Order pronounced in the open court on 15.06.2016.