ADIT (E) II(1), MUMBAI V. JASLOK HOSPITAL & RESEARCH CENTRE, MUMBAI

ITA 6853/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3195 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR JAIN VP
• Assessee Lawyers: P J PERDIWALLA
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Question of law
• Section: 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.6853/M/2014 ASSESSMENT YEAR: 2010-11 ASSTT. DIRECTOR OF INCOME-TAX (EXEMPTION)-II(1), 507, 5 TH FLOOR, PIRAMAL CHAMBERS AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. JASLOK HOSPITAL & RESEARCH CENTRE, 15, DR. G. DESHMUKH MARG, MUMBAI 400 026 PAN: AAAAJ 0028Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI P.J. PERDIWALLA, A.R. & MADHUR AGARWAL, A.R. REVENUE BY : SHRI ASGHAR JAIN V.P, D.R. DATE OF HEARING : 06.06.2016 DATE OF PRONOUNCEMENT : 15.06.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 22.08.2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2010-11. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 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 O F THE ID. CIT(A) WHEREBY THE ID. CIT(A) ALLOWED THE CLAIM OF DEPRECIATION OF RS 17,0 3,87,827/-, RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE 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 ESCO RTS 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 PROVIDE D 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 O F THE LD CIT(A), WHEN THE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABL E TRUST AND KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS VS CIT 7 6 DTR (KER) 372 HAS DECIDED ITA NO.6853/M/2014 M/S. JASLOK HOSPITAL & RESEARCH CENTRE 2 THE ISSUE IN THE FAVOUR OF THE DEPARTMENT AFTER CON SIDERING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD (1 99 ITR 43). 3 WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF THE AS SESSEE 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 STORE S 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 C ASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF THE AS SESSEE 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 NO T COMPLIED WITH THAT PARTICULAR CONDITION AS REQUIRED UNDER THE LAW. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS)-1, MUMBAI BE SET ASIDE AND THAT OF THE AS SESSING 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 AR E THAT THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HOSPITAL, A REGISTERED CHAR ITABLE 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 A PPLICATION OF INCOME. THE AO DISALLOWED THE CLAIM OF DEPRECIATION OBSERVING T HAT IT WOULD AMOUNT TO DOUBLE DEDUCTION. 4. THE LD. CIT(A), HOWEVER, RELYING UPON THE DECISI ON OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CI T VS. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) 264 ITR 110 (BOMBAY) HE LD 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 YEAR S. BEING AGGRIEVED, THE REVENUE HAS COME IN APPEAL BEFORE US. 5. THE LD. A.R. OF THE ASSESSEE HAS BROUGHT OUR ATT ENTION TO A RECENT DECISION OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF ITA NO.6853/M/2014 M/S. JASLOK HOSPITAL & RESEARCH CENTRE 3 DIRECTOR OF INCOME TAX (EXEMPTION) VS. M/S. G.D. B IRLA MEDICAL RESEARCH AND EDUCATIONAL FOUNDATION ITA NOS.2294 & 2295/201 3 VIDE ORDER DATED 01.02.16. 6. WE FIND THAT THE QUESTION OF LAW FRAMED BY THE H ONBLE BOMBAY HIGH COURT IN THE ABOVE STATED CASE IS IDENTICAL TO THE GROUNDS 1 & 2 TAKEN BY THE REVENUE IN THIS APPEAL. THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT WHILE RELYING UPON ANOTHER DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTIO N (SUPRA) AND IN ANOTHER CASE OF DIT(E) VS. GKR CHARITIES (32 TAXMANN.COM 2 08) AND FURTHER IN THE CASE OF CIT-II THANE VS. M/S. JAWAHARLAL NEHRU POR T TRUST ITA NO.9836/2013 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 RE SPECT OF ASSETS ACQUIRED AND USED BY THE TRUST. IN VIEW OF THE ABOVE DECISION O F THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT, THE GROUND NOS.1 & 2 OF THE REVE NUES APPEAL ARE HEREBY DISMISSED. GROUND NOS.3 & 4 7. THE BRIEF FACTS RELATING TO THE ISSUES RAISED VI DE 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 HOS PITAL. THE AO NOTED THAT THE TURNOVER OF THE ASSESSEES PHARMACY STORE WAS VERY HIGH WHICH WAS AROUND 13.18% OF THE TOTAL HOSPITAL COLLECTIONS FROM INPAT IENT AND OUTPATIENT PROFIT FROM THE PHARMACY STORE CAME AT 17.18% OF ITS TURNO VER. THE AO ASSESSED THE INCOME FROM THE PHARMACY STORE AS BUSINESS INCOME B Y 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. ITA NO.6853/M/2014 M/S. JASLOK HOSPITAL & RESEARCH CENTRE 4 8. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE PHAR MACY RUN BY THE HOSPITAL WAS INTEGRALLY ATTACHED TO THE ACTIVITIES DONE BY THE TRUST/HOSPITAL OF PROVIDING MEDICAL RELIEF WHICH TERM HAS BEEN INCLUD ED 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 ERRONEOU S CONCLUSION OF TREATING THE RECEIPTS FROM PHARMACY AS SEPARATE BUSINESS INCOME OF THE ASSESSEE. HE THEREFORE DELETED THE ADDITION MADE BY THE AO ON TH IS ISSUE. 9. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS EXPL AINED 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 P ATIENTS IS AN INDISPENSIBLE PART OF THE OBJECTIVE OF PROVIDING MEDICAL RELIEF T O 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 MEDICA L RELIEF WHICH OTHERWISE ALSO CONTRIBUTES IN SAVING THE LIFE OF PATIENTS BY MAKIN G AVAILABLE THE TREATMENT AND MEDICINES WITHOUT LOSS OF TIME. THE LD. A.R. HAS F URTHER BROUGHT OUR ATTENTION TO THE RECENT DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF BAUN FOUNDATION TRUST VS. CHIEF COMMISSIONER OF INCOME T AX (2013) 33 TAXMANN.COM 677 (BOMBAY), WHEREIN, THE HONBLE BOMB AY HIGH COURT HAS HELD THAT THE ACTIVITY OF A CHEMIST SHOP IS AN ACTI VITY 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 PREDOMINANT LY BY THE PATIENTS AND THEIR RELATIVES. THE HONBLE BOMBAY HIGH COURT (SUPRA) O BSERVED THAT WHERE THE RUNNING OF A CHEMIST SHOP WAS NOT THE DOMINANT OBJE CT OR PURPOSE OF THE TRUST AND WHERE THE SURPLUS, WHICH WAS EARNED FROM THE OP ERATION OF A CHEMIST SHOP IN THE HOSPITAL, WAS UTILIZED FOR THE PURPOSE OF HO SPITAL AND THE ESTABLISHMENT OF A CHEMIST SHOP IN THE HOSPITAL IS INCIDENTAL OR ANC ILLARY TO THE DOMINANT PURPOSE OF THE TRUST/HOSPITAL, THEN, UNDER SUCH CIRCUMSTANC ES, EXEMPTION ON THIS GROUND CANNOT BE DENIED TO A CHARITABLE TRUST UNDER THE PR OVISIONS OF SECTION ITA NO.6853/M/2014 M/S. JASLOK HOSPITAL & RESEARCH CENTRE 5 10(23C)(VIA) OF THE INCOME TAX ACT. THE LD. A.R. H AS FURTHER INVITED OUR ATTENTION TO A RECENT DECISION OF THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF HIRANANDANI FOUNDATION VS. ACIT (E), MUMBA I WHEREIN THE TRIBUNAL HAS DISCUSSED THE IDENTICAL ISSUE. THE AO IN THE S AID CASE (SUPRA) HAD MADE ADDITIONS INVOKING PROVISION OF SUB SECTION (4A) OF SECTION 11 AND OBSERVING THAT THE ASSESSEE HOSPITAL HAD FAILED TO MAINTAIN T HE 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 A ND IN FACT THE SAME CONSTITUTES AN INTEGRAL PART OF THE RUNNING OF HOSP ITAL AND THE ASSESSEE HAS UNDISPUTEDLY MAINTAINED THE BOOKS OF ACCOUNTS FOR T HE HOSPITAL, HENCE THE ASSESSEE FULFILS THE CONDITION OF MAINTAINING THE S EPARATE 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 RUN NING 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 TR UST AND THUS WAS NOT HIT BY THE PROVISIONS OF SECTION 11(4A) OF THE ACT. THE ABOVE DECISIONS OF THE HONBLE BOMBAY HIGH COURT AND OF THE CO-ORDINATE BENCH OF T HE 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. 10. GROUND NOS.5 & 6 ARE GENERAL IN NATURE AND DO N OT REQUIRE ANY ADJUDICATION. 11. IN THE RESULT, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS HEREBY DISMISSED. ITA NO.6853/M/2014 M/S. JASLOK HOSPITAL & RESEARCH CENTRE 6 ORDER PRONOUNCED IN THE OPEN COURT ON 15.06.2016. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15.06.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.