ACIT (E) 2(1), MUMBAI V. NATIONAL HELATH & EDUCATION SOCIETY, MUMBAI

ITA 3390/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8216 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-06-2015
• Court: TRIBUNAL
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Charitable institution; Benefit of exemption
• Section: 143(3); 14A; 12A; 11

Judgement Text

, , H, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3390/MUM/2015 ASSESSMENT YEAR: 2011-12 ACIT (E) 2(1) R.NO.510, 5 TH FLOOR, PIRMAL CHAMBERS, LALBAUG MUMBAI-400012 / VS. NATIONAL HEALTH & EDUCATION SOCIETY, CO. P. D. HINDUJA NATIONAL HOSPITAL & MEDICAL RESARCH CENTRE, VEER SAVARKAR MARG, MAHIM MUMBAI-400016 ( REVENUE ) (RESPONDENT ) P.A. NO. AAATN0093Q REVENUE BY SHRI RAHUL RAMAN, (CIT - DR) RESPONDENT BY SHRI S.C. TIWARI, ( A R) / DATE OF HEARING: 07/02/2017 / DATE OF ORDER: 15/02/2017 / O R D E R PER ASHWANI TANEJA, A.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST O RDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI -1 (IN SHORT CIT(A)}, DATED 24.03.2015 PASSED ORDER AGAI NST U/S 143(3) OF THE ACT, ASSESSMENT ORDER DATED 20.03.201 4 FOR ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), MUMBAI, IS JUSTIFIED IN GRA NTING EXEMPTION U/S. 11 OF THE INCOME TAX ACT, 1961? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE NATIONAL HEALTH & EDUCATION SO. 2 AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 11 IGNORING THE FACTS THAT THE ASSESSING OFFICER IN HIS ORDER HAS P OINTED OUT THAT ASSESSEE RUNS A PHARMACY STORE IN ITS HOSP ITAL FOR PROFIT MOTIVE. PROFIT OF PHARMACY STORES COMES TO RS. 14,11,22,23 1/- ? 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A), MUMBAI, IS JUSTIFI ED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/ S 11 IGNORING THE FACT THAT ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT IN RESPECT OF PHARMACY STORE. THE ASSESSEE HAS NOT COMPLIED WITH THAT PART ICULAR CONDITION AS REQUIRED UNDER THE LAW? 4. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MUMBAI BE S ET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. THE BRIEF BACKGROUND AND FACTS OF THIS CASE ARE TH AT THE DURING THE YEAR THE ASSESSEE WAS REGISTERED AS A CH ARITABLE ORGANIZATION WITH DIT (EXEMPTION), MUMBAI, U/S. 12A AND ALSO WITH CHARITY COMMISSIONER OF MUMBAI AND WAS RU NNING A HOSPITAL AND MEDICAL RESEARCH CENTRE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S NOTED BY THE AO THAT THE ASSESSEE RUNS A PHARMACY STORE I N ITS HOSPITAL AND HAS TURNOVER OF RS.40.49 CRORES COMPRI SING OF SALES OF DRUGS AND MEDICINES TO THE PATIENTS THROUG H THE PHARMACY STORE. IT SHOWED SURPLUS OF RS.14.11 CRORE S ON THE SALES DONE BY THE PHARMACY STORE. THEREFORE, THE AO ASKED THE ASSESSEE AS TO WHY THE BENEFIT OF EXEMPTION SHOULD NOT BE DENIED TO THE ASSESSEE SINCE ASSESSEE WAS ENGAGED I N THE BUSINESS AND ACCORDINGLY THE SURPLUS OF PHARMACY ST ORE OF RS.14.11 CRORE SHOULD BE ASSESSED AS BUSINESS INCOM E U/S 11(4A). IN REPLY, THE ASSESSEE SUBMITTED THAT SALES OF DRUGS AND MEDICINES WERE MADE TO INDOOR PATIENTS OF THE H OSPITAL NATIONAL HEALTH & EDUCATION SO. 3 AND NO SALE WAS DONE OVER THE COUNTER. THUS, NO SAL E WAS DONE TO OUTSIDE PATIENTS; THEREFORE RUNNING OF THE PHARMACY STORE WAS PART OF THE DOMINANT OBJECT OF THE HOSPIT AL AND WAS NOT FOR THE PURPOSE OF DOING BUSINESS AND EARNING O F PROFIT THROUGH RUNNING OF PHARMACY STORE. HOWEVER, THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE, THE REFORE, SURPLUS OF RS.14.11 CRORES EARNED BY THE PHARMACY S TORE WAS TREATED AS BUSINESS INCOME U/S 14A OF THE ACT. IT W AS ALSO OBSERVED BY THE AO THAT NO SEPARATE BOOKS OF ACCOUN TS WERE MAINTAINED BY THE ASSESSEE WITH RESPECT TO PHARMACY STORE AND THUS, THE ASSESSEE FAILED TO COMPLY WITH CONDIT IONS AS REQUIRED UNDER THE LAW. THIS PROFIT EARNED BY THE P HARMACY STORE WAS LIABLE TO THE TAXED SEPARATELY. 4. BEING AGGRIEVED, THE ASSESSEE FILED BEFORE LD. CIT (A) WHEREIN DETAILED SUBMISSIONS WERE MADE REITERATING THE ARGU MENTS MADE BEFORE THE AO. LD. CIT(A) CONSIDERED THE SUBMI SSIONS OF THE ASSESSEE AND RELYING UPON THE ORDER FOR A.Y. 2 010-11, DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 6.2 THE ISSUE HAS COME UP FOR CONSIDERATION BY THE CIT(A)-I FOR A.Y. 2010- 11 ALSO IN ITS GROUND NO. 1 OF APPEAL. AFTER CONSIDERING THE FACTS AND CIRCUMSTANC ES ON THIS ISSUE, IT WAS HELD THAT '7. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, ASSESSMENT ORDER OF THE A.O AND SUBMISSIONS OF THE APPELLANT. THE AD HAS TREATED RECEIPTS FROM SALE OF MEDICINES FROM THE PHARMACY STORE IN THE HOSPITAL RUN BY THE TRUST AS BUSINESS INCOME AND FURTHER RESORTED TO APPLICATION OF SECTION 11(4A) OF THE I. T. ACT FOR THIS PURPOSE. T HE CONTENTION OF THE APPELLANT IS THAT RUNNING OF PHARMACY IN THE HOSPITAL, WHICH IS BEING RUN FOR CHARITABLE PURPOSES, IS NOT A BUSINESS ACTIVITY MER ELY FOR THE REASON THAT SOME SURPLUS HAS BEEN GENERATED. IT NATIONAL HEALTH & EDUCATION SO. 4 IS ALSO ARGUED THAT THE APPARENT SURPLUS NOTED BY A O IS ALSO NOT CORRECT BECAUSE IT IS WITHOUT CONSIDERI NG THE OVERHEAD EXPENSES. THE AO IN PARA 7 OF THE ASSESSMENT ORDER HAS SPECIFICALLY NOTED THAT 'THOUGH ASSESSEE CLAIMS THAT IT DOES NOT SELL MEDIC INES TO OUTSIDE PATIENTS MEANING WHICH ARE NOT REGISTERE D AT HOSPITAL AS PATIENTS INDOOR OR OPD TRUST DEED OF ASSESSEE DOES NOT BAR HOSPITAL FROM SELLING MEDICIN ES TO OUTSIDERS. NEVERTHELESS IT SELLS MEDICINES TO IT S INDOOR AND OUTDOOR PATIENTS.' 7.1 IT IS OBVIOUS FROM THE ABOVE OBSERVATION OF AO THAT HE HAS DETERMINED THE SALE OF MEDICINES AND RUNNING OF PHARMACY AS BUSINESS OF APPELLANT ON THE BASIS OF OBJECTIVE CLAUSE OF THE TRUST RATHER THAN BRINGING ON RECORD ANY SUCH MATERIAL WHICH COULD SHOW THAT THE PHARMACY HAS BEEN RUN AS A BUSINESS VENTURE, SEPARATE AND INDEPENDENT OF HOSPITAL. UNDE R THE CIRCUMSTANCES, THE FINDING GIVEN BY AO IS ERRON EOUS. 7.2 IT IS ALSO ON RECORD THAT THE APPELLANT HAS BEE N GRANTED APPROVAL U/S. 10(23C)(VIA) OF THE 1. T. ACT WITH EFFECT FROM A. Y. 2009-10 WHICH HAS BEEN AGITATED A ND INCORPORATED IN GROUND NO. 2 OF APPEAL. THE ID. CCI T DURING THE PROCEEDINGS U/S. 10(23C) IS STATED TO HA VE LOOKED INTO THE ASPECT OF RUNNING OF SAID PHARMACY IN THE CASE OF THE APPELLANT AND HAD GRANTED APPROVAL AFTER SATISFYING HIMSELF ON THIS ISSUE. THE APPROVA L GRANTED BY THE HON. CCIT U/S. 10(23C)(VIA) VIDE APPROVAL DATED 07.04.2011 W.E.F. A.Y. 2009-10 IS AFTER SATISFACTION ON THE ISSUE OF 'EXISTING SOLELY FOR PHILANTHROPIC PURPOSES AND NOT FOR PURPOSES OF PROFIT, AS APPEARING IN SECTION 10(23C)(VIA), PARTICULARLY WHEN THIS ISSUE HAD BEEN EXAMINED AND APPROVED IN THE PROCEEDINGS FOR GRANTING SUCH APPROVAL. THE APPELLANT HAS ALSO FURNISHED COPY OF SUBMISSIONS BEFORE THE HON. CCIT ON THIS ISSUE CONFIRMING THAT SAME WAS EXAMINED FOR THAT PURPOSE AND NO ADVERSE VIEW WAS TAKEN IN REFERENCE TO RUNNING OF PHARMACY. THEREFORE, UNDER THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE THERE IS NO BAS IS FOR TREATING THE RUNNING OF PHARMACY AS A BUSINESS VENTURE. NO SUCH MATERIAL HAS BEEN BROUGHT ON RECOR D BY AO REQUIRING RE-EXAMINATION ON THIS ASPECT. NATIONAL HEALTH & EDUCATION SO. 5 SINCE IN TERMS OF APPROVAL U/S. 10(23C)(VIA); THE RUNNING OF PHARMACY IS PART OF PHILANTHROPIC ACTIVI TY OF RUNNING OF HOSPITAL, SINCE THERE IS NO MATERIAL AND EVIDENCE BROUGHT ON RECORD BY AO REQUIRING ADVERSE VIEW OR RE-EXAMINATION OF THE EARLIER FINDINGS ON THIS I SSUE AND SINCE THE DECISION IN THE CASE OF JURISDICTIONAL HI GH COURT IN BAUN FOUNDATION TRUST VS. CCIT-I, MUMBAI IN WP NO. 1206 OF 2010 IS APPLICABLE TO THE FACTS O F THE CASE, IN FAVOUR OF THE APPELLANT, THEREFORE, FO R THE REASONS AS ABOVE GROUND NO.1 OF APPEAL IS ALLOWED. SINCE RUNNING OF PHARMACY IS NOT A BUSINESS ACTIVIT Y OF THE APPELLANT FOR THE REASON AND MATERIAL NOTED ABOVE; THEREFORE, APPLICATION OF SECTION 11(4A) IS NOT CALLED FOR AND DOES NOT APPLY. ACCORDINGLY, THE ADDITION AND TAXABILITY OF SURPLUS OF PHARMACY IS H ELD AS ERRONEOUS AND ORDERED TO BE DELETED.' 6.3 THE FACTS AND CIRCUMSTANCES ON THIS ISSUE, BEING SIMILAR TO THE ASSESSMENT YEAR 2010-11, IT IS HELD THAT THE GROUND NO. 3 OF APPEAL IS LIABLE TO B E ALLOWED FOR THE REASONS AS DISCUSSED ABOVE. THEREFORE, GROUND NO.3 OF APPEAL IS ALLOWED AND THE ADDITION MADE BY THE A.O U/S. 11(4) OF THE I.T. ACT, 1961 AMOUNTING TO RS. 14,11,22,231/- RELATING TO SURPLUS OF PHARMACY STORE IS DIRECTED TO BE DELE TED. 5. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 6. DURING THE COURSE OF HEARING BEFORE US, LD. DR VEH EMENTLY OPPOSED THE ORDER OF THE AO. IT WAS SUBMITTED BY TH E LD. DR THAT LD. CIT(A) DID NOT VERIFY EVEN THE BASIC FACT BEFORE REVERSING THE ORDER BY THE ASSESSING OFFICER. IT HA S NOT BEEN VERIFIED WHETHER THE ASSESSEE IS MAINTAINING SEPARA TE BOOKS OF ACCOUNTS WITH RESPECT TO PHARMACY STORE BECAUSE THE AO HAD GIVEN ADVERSE COMMENTS ABOUT THE SAME. FURTHER, THE CRUCIAL FACT WHETHER THE PROFIT OF THE PHARMACY STORE HAS B EEN USED FOR THE PURPOSE OF RUNNING HOSPITAL IN THE CHARITAB LE ACTIVITIES OR IT HAS BEEN USED FOR SOME OTHER PURPOSES HAS NOT BEEN NATIONAL HEALTH & EDUCATION SO. 6 VERIFIED. IT IS ALSO NOT CLEAR WHETHER THAT DRUGS A ND MEDICINES ARE SOLD TO INDOOR PATIENTS ONLY OR THESE ARE SOLD TO OUTSIDE PERSONS ALSO WHO WERE NOT ADMITTED IN THE HOSPITAL. THEREFORE, THE ISSUE DECIDED BY THE LD. CIT(A) WITHOUT VERIFIC ATION OF FACTS NEEDS TO BE SENT BACK TO THE FILE OF AO FOR PROPER EXAMINATION OF FACTS. 7. PER CONTRA LD. COUNSEL OF THE ASSESSEE SUBMITTED T HAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 17.08.2016. THUS, THE ISS UE IS PRINCIPALLY COVERED IN FAVOUR OF THE ASSESSEE WITH THE JUDGMENT OF HONBLE TRIBUNAL. HOWEVER, HE FAIRLY SUBMITTED T HAT FOR THE PURPOSE OF VERIFICATION OF FACTS, THIS MATTER CAN B E SENT BACK TO THE FILE OF LOWER AUTHORITIES. HE ALSO RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BAUN FO UNDATION TRUST V. CCIT 73 DTR 45 AND DECISION OF MUMBAI BEN CH OF TRIBUNAL IN THE CASE OF HIRANANDANI FOUNDATION V. A DIT (ITA NO.560/MUM/2016) DATED 27.5.2016. 8. WE HAVE GONE THROUGH THE ORDER PASSED BY THE LOWER AUTHORITIES. IT IS NOTED THAT LD. CIT(A) HAS REVERS ED THE ORDER OF THE AO AND ALLOWED THE RELIEF OF THE ASSESSEE RELYI NG UPON HIS OWN ORDER FOR EARLIER YEAR AND DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BAUN FOUNDATION TRUST (SU PRA). HOWEVER, WHILE DECIDING THIS ISSUE, LD. CIT(A) HAS NOT DISCUSSED AT ALL ACTUAL FACTS OF THE CASE AS WERE I NVOLVED IN THE YEAR BEFORE US. THEREFORE, WE FIND IT APPROPRIATE T O SEND THIS APPEAL BACK TO THE FILE OF LD. CIT(A) WHO SHALL DEC IDE THIS APPEAL AFRESH AFTER TAKING INTO ACCOUNT FACT OF THI S CASE MORE SPECIFICALLY ON THOSE ISSUES AS WERE RAISED BY THE LD. DR BEFORE NATIONAL HEALTH & EDUCATION SO. 7 US. HE SHALL ALSO TAKE INTO ACCOUNT, THE DECISION R ELIED UPON BY THE LD. COUNSEL BEFORE US, AND ADEQUATE OPPORTUNITY OF HEARING SHALL BE GIVEN TO THE ASSESSEE TO FILE WRIT TEN SUBMISSIONS AND EVIDENCES BEFORE PASSING THE APPEAL ORDER. LD. CIT(A) SHALL TAKE INTO ACCOUNT ENTIRE MATERIAL AS MAY BE PLACED ON RECORD BY THE ASSESSEE AND SHALL PASS DET AILED AND WELL REASONED ORDER AFTER DISCUSSING FACTS OF THIS CASE AS WELL AS APPLICABLE LEGAL POSITION. THE ASSESSEE SHALL BE FREE TO RAISE ALL THE LEGAL AND FACTUAL ISSUES AS MAY BE CONSIDER ED APPROPRIATE. WITH THESE DIRECTIONS THIS APPEAL IS S ENT BACK TO THE FILE OF LD. CIT(A). 4. IN THE RESULT, THE APPEAL FILED BY THE REVENUE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING. SD/- (D.T. GARASIA ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15 /02/2017 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI