Franciscan Sisters of St. Joseph Society, CHENNAI V. JCIT, CHENNAI

ITA 1897/CHNY/2013

• Counselvise Citation: 189721714 RSA 2013
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 25-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: G BASK
• Keywords: Depreciation
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 1897(MDS)/2013 ASSESSMENT YEAR : 2009-10 M/S FRANCISCAN SISTERS OF ST. JOSEPH SOCIETY NO.VIII, ST. LOUIS CONVENT, ST. THOMAS MOUNT, CHENNAI - 600 016. PAN : AAAAF 0021 B V. THE JOINT COMMISSIONER OF INCOME TAX (EXEMPTIONS)-II, CHENNAI - 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G. BASK AR, ADVOCATE RESPONDENT BY : SHRI SHAJI P. JA COB, IRS, ADDL.CIT DATE OF HEARING : 2 ND JANUARY, 2014 DATE OF PRONOUNCEMENT : 6 TH JANUARY, 2014 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL FILED BY THE ASSESSEE-SOCIETY PERTAIN S TO ASSESSMENT YEAR 2009-10. THE APPEAL IS DIRECTED AG AINST THE - - I.T.A. NO. 1897/MDS/13 2 ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VII A T CHENNAI, PASSED ON 3.10.2013. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF INCOME-TAX ACT, 1 961. 2. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE S OCIETIES REGISTRATION ACT, 1860, ON 26 TH FEBRUARY, 1955. THE SOCIETY IS ALSO GRANTED REGISTRATION UNDER SECTION 12A, AS A C HARITABLE INSTITUTION, THROUGH AN ORDER OF THE COMMISSIONER O F INCOME TAX, TAMIL NADU V, ON 9.8.1973. THE ASSESSEE-SOCIETY IS ALSO REGISTERED WITH MINISTRY OF HOME AFFAIRS, GOVERNMEN T OF INDIA, FOR THE PURPOSE OF REPORTING DETAILS AND UTILIZATION OF FUNDS RECEIVED FROM OUTSIDE INDIA. 3. AS PER THE RECORDS AVAILABLE BEFORE US, THE OBJE CT OF THE ASSESSEE-SOCIETY IS TO CARRY ON CHARITABLE ACTIVITI ES BY INVOLVING IN EDUCATIONAL AND MEDICAL RELIEF ACTIVITIES ALONG WITH PROGRAMMES OF RURAL DEVELOPMENT AND OTHER MISCELLAN EOUS SOCIAL SERVICE ACTIVITIES. 4. IN VIEW OF THE ABOVE OBJECTS, THE ASSESSEE-SOCIE TY IS RUNNING A HOSPITAL BY NAME ST. THOMAS HOSPITAL AT ST. THOMAS - - I.T.A. NO. 1897/MDS/13 3 MOUNT, CHENNAI. THE SOCIETY IS ALSO RUNNING A DISP ENSARY FOR THE BENEFIT OF PUBLIC AT LARGE. IT ALSO RUNS A NUMBER OF SCHOOLS PROVIDING GENERAL EDUCATION AS ALSO A SPECIAL SCHOO L FOR NURSING. THE SOCIETY WAS ALSO RUNNING A TYPEWRITING INSTITUT E. OTHER ACTIVITIES OF THE ASSESSEE-SOCIETY ARE RUNNING A WO RKING WOMENS HOSTEL, STUDENTS HOSTEL, CRCHE AND OLD-AGE HOMES. 5. WHILE COMPUTING THE ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER OBSERVED THA T CERTAIN ACTIVITIES CARRIED ON BY THE ASSESSEE-SOCIETY INVOL VE CARRYING ON OF ACTIVITIES IN THE NATURE OF TRADE AND BUSINESS A ND THEREFORE, SUCH ACTIVITIES, EVEN IF MEANT FOR ADVANCEMENT OF A NY OBJECT OF GENERAL PUBLIC UTILITY, CANNOT BE TREATED AS CHARIT ABLE PURPOSE WITHIN THE MEANING OF PROVISO PROVIDED IN SECTION 2 (15) OF THE INCOME-TAX ACT, 1961, SUBSEQUENT TO THE RELEVANT AM ENDMENT BROUGHT THEREIN. THE ASSESSING OFFICER LISTED OUT SUCH ACTIVITIES IN THE NATURE OF BUSINESS, AS GIVEN BELOW, ALONG WI TH THE TOTAL RECEIPTS ACCOUNTED BY THE ASSESSEE AGAINST THOSE AC TIVITIES:- (1) PHARMACY : ` 2,25,78,151 (2) TYPEWRIRING INSTITUTE : ` 1,04,650 (3) WORKING WOMENS HOSTEL : ` 5,44,350 (4) CRECHE : ` 56,000 - - I.T.A. NO. 1897/MDS/13 4 6. IN THE CASE OF PHARMACY, THE ASSESSING OFFICER O BSERVED THAT IT IS ANNEXED TO THE ST. THOMAS HOSPITAL AND E NGAGED IN SALE OF MEDICINE TO PUBLIC WHICH AMOUNTS TO BUSINES S ACTIVITY. SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED FOR THE P HARMACY BUSINESS. IN THE CASE OF TYPEWRITING INSTITUTE, TH E ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE WAS COLLECTING F EES FROM STUDENTS UNDERGOING THE TRAINING. THEREFORE, IT IS COMMERCIAL IN NATURE. IN RESPECT OF WORKING WOMENS HOSTEL, AGAI N THE ASSESSING OFFICER HAS OBSERVED THAT FACILITIES ARE PROVIDED AGAINST PAYMENT OF FEES AND THEREFORE, IT IS IN THE NATURE OF BUSINESS ACTIVITY. IN THE CASE OF CRCHE ALSO, THE ASSESSING OFFICER HAS OBSERVED THAT FEES ARE COLLECTED AGAINS T ADMISSION OF CHILDREN AND THEREFORE, IT IS AN ACTIVITY COMMERCIA L IN NATURE. 7. IN THE LIGHT OF ABOVE OBSERVATION, THE ASSESSING OFFICER TREATED THE ABOVE RECEIPTS ACCOUNTED BY THE ASSESSE E AS RELATING TO BUSINESS ACTIVITIES AND ACCORDINGLY DEN IED EXEMPTION UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961. IN R ESPECT OF RECEIPTS ARISING OUT OF OTHER ACTIVITIES, SUCH AS R UNNING OF HOSPITAL, SCHOOLS, ETC., THE ASSESSING AUTHORITY HA S GRANTED THE - - I.T.A. NO. 1897/MDS/13 5 BENEFIT OF SECTION 11 TO THE ASSESSEE-SOCIETY. A P ORTION OF THE INCOME OF THE ASSESSEE-SOCIETY HAS BEEN BROUGHT TO TAX ON THE GROUND THAT CERTAIN ACTIVITIES INVOLVE CARRYING ON OF ACTIVITIES IN THE NATURE OF BUSINESS. 8. WHEN THE MATTER WAS TAKEN IN FIRST APPEAL BEFORE CIT(APPEALS), HE CONFIRMED THE ORDER OF THE ASSESSI NG AUTHORITY AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. TH E ASSESSEE IS AGGRIEVED AND THEREFORE, THE SECOND APPEAL BEFOR E THE TRIBUNAL. 9. THE RELEVANT GROUNDS RAISED IN THE PRESENT APPEA L READ AS BELOW:- (1.1) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF ASSESSMENT DENYING EXEMPTION U/S.11 OF THE INCOME-TAX ACT. (1.2) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN OBSERVING THAT THE ASSESSEE DOES NOT DENY THE CARRYING ON ACTIVITIES OF TYPEWRITING INSTITUTE , WOMENS HOSTEL, CRCHE AND PHARMACY ON A PROFITABLE BASIS. (1.3) THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE APPELLANT DID NOT DENY SELLING O F MEDICINES TO OUTSIDERS. EVEN ASSUMING SO, SALE OF MEDICINES IS ONLY AN OBJECT OF PROVIDING MEDICAL RE LIEF TO THE POOR VIRTUALLY AT COST AND WOULD NOT MAKE IT AN OBJECT OF PROFIT. - - I.T.A. NO. 1897/MDS/13 6 (1.4) THE COMMISSIONER OF INCOME TAX (APPEALS) WENT WRONG IN HOLDING THAT THE APPELLANT RUNS DISPENSARIES IN TWO PLACES IN A COMMERCIAL MANNER, WHICH FINDING IS PERVERSE; AND IN ANY EVENT PROVIDI NG MEDICAL RELIEF IS COVERED IN THE FIRST TWO LIMBS OF SEC.2(15). (2.1) THE COMMISSIONER OF INCOME TAX (APPEALS) WENT CONFIRMING THE DISALLOWANCE OF DEPRECIATION AN D THAT IT AMOUNTS TO DOUBLE DEDUCTION. (2.2) THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO FOLLOW THE VARIOUS AUTHORITIES CITED BEFO RE HIM AND WENT WRONG IN RELYING ON A DECISION WHICH IS NO T APPLICABLE TO THE FACTS OF THE CASE. 10. WE HEARD SHRI G. BASKAR, THE ADVOCATE, APPEARIN G FOR THE ASSESSEE-SOCIETY AND SHRI SHAJI P. JACOB, THE ADDIT IONAL COMMISSIONER OF INCOME TAX, APPEARING FOR THE REVEN UE. 11. THE CRUCIAL QUESTION TO BE ANSWERED IN THE PRES ENT APPEAL IS WHETHER CERTAIN ACTIVITIES POINTED OUT BY THE AS SESSING AUTHORITY ARE IN FACT CARRIED OUT IN THE NATURE OF BUSINESS/COMMERCIAL ACTIVITIES. 12. THE FIRST ITEM SO CONSIDERED BY THE ASSESSING A UTHORITY IS THE RECEIPTS FROM PHARMACY SECTION. IT IS TO BE SE EN THAT ASSESSEE IS RUNNING A FULL-FLEDGED GENERAL HOSPITAL AT ST. THOMAS MOUNT. THE ASSESSING AUTHORITY HAS, NO DOUBT, ACCE PTED THE CHARITABLE NATURE OF ACTIVITIES CARRIED ON BY THE A SSESSEE-SOCIETY - - I.T.A. NO. 1897/MDS/13 7 IN RESPECT OF THAT HOSPITAL. THE ASSESSEE IS ALSO RUNNING A DISPENSARY. NUMBER OF PATIENTS ARE VISITING THE HO SPITAL AND DISPENSARY ON A DAILY BASIS. PATIENTS ARE ADMITTED AS IN-PATIENTS AND THEY ARE ALSO TREATED AS OUT-PATIENTS. FOR ALL THE IN-PATIENTS UNDERGOING TREATMENT IN THE HOSPITAL, MEDICINES ARE DELIVERED FROM THE PHARMACY RUN BY THE ASSESSEE-SOCIETY. IN RESPECT OF OUT-PATIENTS ALSO, MOST OF THE PATIENTS PURCHASE ME DICINE FROM THE PHARMACY RUN BY THE ASSESSEE. A FEW OF THE OUT -PATIENTS MIGHT PURCHASE MEDICINES FROM OUTSIDE. LIKEWISE, F EW FROM THE PUBLIC LIVING NEARBY TO THE HOSPITAL MAY PURCHASE M EDICINES FROM THE PHARMACY RUN BY THE ASSESSEE-SOCIETY. THE PURC HASE OF MEDICINES BY THE PUBLIC IS ABSOLUTELY NEGLIGIBLE. THAT NEGLIGIBLE AMOUNT OF SALES, IF ANY, CANNOT DECIDE THE NATURE O F ACTIVITIES CARRIED ON BY THE ASSESSEE IN RUNNING THE PHARMACY IN ITS HOSPITAL PREMISES. THE PHARMACY IS NOT SITUATED IN ANY COMMERCIAL AREA OR OUTSIDE THE HOSPITAL COMPOUND WI TH THE INTENTION TO INVITE THE PUBLIC AT LARGE TO PURCHASE MEDICINES FROM THE PHARMACY RUN BY THE ASSESSEE-SOCIETY. THE ASSE SSEE- SOCIETY IS RUNNING THE PHARMACY WITHIN THE PREMISES OF THE HOSPITAL AND AS PART OF THE HOSPITAL ITSELF. IT IS CLEAR THAT THE - - I.T.A. NO. 1897/MDS/13 8 PHARMACY IS RUN BY THE ASSESSEE-SOCIETY ONLY FOR TH E PURPOSE OF RUNNING THE HOSPITAL. THE HOSPITAL CANNOT BE RUN W ITHOUT A PHARMACY ATTACHED TO IT. IF AN ASSESSEE WANTS TO R UN A HOSPITAL, RUNNING OF THE PHARMACY IS ALSO A MUST. THEREFORE, RUNNING OF THE PHARMACY BY THE ASSESSEE-SOCIETY IS NOT AN ACTI VITY CARRIED ON BY THE ASSESSEE INCIDENTAL TO THE RUNNING OF THE HOSPITAL; BUT, ON THE OTHER HAND, IT IS AN INTEGRAL PART OF THE HO SPITAL RUN BY THE ASSESSEE. 13. IN THESE CIRCUMSTANCES, THE ASSESSING AUTHORITY HAS ERRED BOTH ON FACTS AND IN LAW IN HOLDING THAT THE PHARMA CY RUN BY THE ASSESSEE-SOCIETY IS A SEPARATE UNIT, RUNNING AS A B USINESS. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE-SO CIETY HAS MAINTAINED SEPARATE ACCOUNTS FOR THE PHARMACY SECTI ON. MAINTAINING ACCOUNTS SEPARATELY FOR PHARMACY SECTIO N DOES NOT DECIDE THE NATURE OF THE ACTIVITIES CARRIED ON BY T HE ASSESSEE THROUGH RUNNING OF THE PHARMACY. SEPARATE ACCOUNTS ARE MAINTAINED BY THE ASSESSEE FOR THE PURPOSE OF PROPE R ACCOUNTING AND INTERNAL CONTROL. EVEN IN THE CASE OF CHARITAB LE HOSPITAL, IT IS NOT POSSIBLE TO PROVIDE MEDICINES TO EVERY PATIENT, FREE OF COST. IT IS ONLY IN VERY DESERVING CASES, A CHARITABLE INSTI TUTION COULD - - I.T.A. NO. 1897/MDS/13 9 PROVIDE MEDICINES FREE OF COST. THEREFORE, RUNNING OF A PHARMACY SET UP AS PART OF THE HOSPITAL, INVOLVES P URCHASE AND SALE OF MEDICINES. THEREFORE, NOT MUCH DISCUSSION I S NECESSARY TO COME TO A CONCLUSION THAT IN THE CASE OF A FULL- FLEDGED HOSPITAL, PHARMACY IS AN ESSENTIAL PART THEREOF AND AS SUCH, THE PHARMACY IS RUN AS PART OF THE HOSPITAL ESTABLISHMENT. 14. IN THE FACTS AND CIRCUMSTANCES, WE FIND THAT TH E COLLECTION RECEIVED BY THE ASSESSEE FROM ITS PHARMACY SECTION CANNOT BE EXCLUDED FROM COMPUTING THE INCOME ELIGIBLE FOR EXE MPTION UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961. THE PHARMACY COLLECTION ALSO FORMS PART OF THE COLLECTIONS ACCOU NTED BY THE ASSESSEE FROM ITS CHARITABLE ACTIVITIES. THEREFORE , ASSESSING OFFICER IS DIRECTED TO GIVE EXEMPTION UNDER SECTION 11 IN RESPECT OF THE PHARMACY COLLECTION AS WELL. 15. ONCE THE PHARMACY COLLECTION IS TREATED AS PART OF ITS CHARITABLE ACTIVITIES, THE TOTAL OF THE REMAINING I TEMS WORK OUT TO LESS THAN ` 10 LAKHS. THE LAW HAS PROVIDED AS ON DATE AN EXCLUSION OF ` 10 LAKHS FROM THE RIGOURS OF DENYING EXEMPTION - - I.T.A. NO. 1897/MDS/13 10 UNDER SECTION 11, IN RESPECT OF ACTIVITIES INVOLVIN G CARRYING ON BUSINESS OR SIMILAR ACTIVITIES. THE TOTAL OF COLLE CTION FROM TYPEWRITING INSTITUTE, WORKING WOMENS HOSTEL AND C RCHE WORK OUT TO LESS THAN ` 10 LAKHS AND THEREFORE, BY VIRTUE OF THE EXCLUSION CLAUSE, THOSE AMOUNTS ALSO CANNOT BE CONS IDERED FOR DISALLOWING EXEMPTION UNDER SECTION 11. 16. IT IS SUFFICIENT TO STATE THAT, THEREFORE, THE ENTIRE INCOME OF THE ASSESSEE IS ENTITLED FOR RELIEF OF EXEMPTION PR OVIDED UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961. THE ASSESS ING OFFICER IS DIRECTED TO REDO THE ASSESSMENT ON THE ABOVE LIN E. 17. WE MAKE IT VERY CLEAR THAT THIS APPEAL HAS BEEN DECIDED ON THE BASIS OF THE PARTICULAR SET OF FACTS SURROUN DING THE ISSUES RAISED BEFORE US. THE APPEAL IS DECIDED ON THE BAS IS OF THE FACTS OF THE CASE. NO BINDING PROPOSITION HAS BEEN LAID DOWN. THEREFORE, THERE IS NO QUESTION OF TREATING THIS DE CISION AS A BINDING PRECEDENCE FOR SIMILAR CASES WITHOUT GOING INTO THE FACTS OF THOSE CASES. 18. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. - - I.T.A. NO. 1897/MDS/13 11 ORDER PRONOUNCED ON MONDAY, THE 6 TH OF JANUARY, 2014 AT CHENNAI. SD/- SD/- (S.S. GODARA) (DR. O.K. NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 6 TH JANUARY, 2014. KRI. COPY TO: 1. APPELLANT 2. RESPONDENT 3. DIT(EXEMPT IONS), CHENNAI 4. CIT(A)-VII , CHENNAI-34 5. DR 6. GF.