ASST CIT (E) 2(1), MUMBAI V. NATIONAL HEALTH & EDUCATION SOCIETY, MUMBAI

ITA 87/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3536 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 06-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: S C TIWARI
• Keywords: Charitable institution
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.87/MUM/2015 ASSESSMENT YEAR : 2010 - 11 ASST. CIT (E) 2(1) , MUMBAI VS. NATIONAL HEALTH & EDUCATION SOCIETY, C/O P D HINDUJA NATIONAL HOSPITAL & MEDICAL RESEARCH CENTRE, VEER SAVARKAR MARG, MAHIM MUMBAI 400 016 PAN : AAATN0093Q (APPELLANT) RESPONDENT) APPELLANT BY : SHRI N P SINGH RESPONDENT BY : SHRI S C TIWARI & MS. RUTUJA N PAWAR DATE OF HEARING : 11 .0 8 .201 6 DATE OF PRONOUNCEMENT : 17 .0 8 . 201 6 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. 2. 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 F ACTS THAT THE ASSESSEE RUNS A PHARMACY STORE IN THE HOSPITAL FOR PROFIT AND EARNE D PROFIT FROM PHARMACY STORE AND NOT COVERED IN THE CHARITABLE ACTIVITY. 3. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE FILED COPY OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BAUN FOUNDATION TRUST ITA NO.87/MUM/2015 NATIONAL HEALTH & EDUCATION SOCIETY 2 VS. CCIT (2012) 73 DTR 0045 (BOM) AND THE COPY OF T HE ORDER DATED 27.05.2016 OF THE CO-ORDINATE BENCH IN THE CASE OF HIRANANDANI FO UNDATION VS. ADIT IN ITA NOS. 560 TO 563/MUM/2016. IT WAS SUBMITTED THAT THE CAS E OF THE ASSESSEE IS FULLY COVERED BY THE RATIO OF THE SAID DECISIONS AND, THE REFORE, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED WITH COST. 4. THE LEARNED DR FAIRLY AGREED WITH THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE AO HAS TREATED THE SALE O F 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 F OR 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 ASSESSE E 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 INTEGRA L PART OF ANY HOSPITAL AND CAN NOT BE TREATED AS BUSINESS ACTIVITY. HAD THE ASSES SEE OPERATED A PHARMACY STORE WITHOUT RUNNING A HOSPITAL , THEN THE ACTIVITY WOU LD HAVE BEEN CLASSIFIED DIFFERENTLY. 6. 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 T RIBUNAL IN THE CASE OF HIRANANDANI FOUNDATION IN ITA NO. 561/MUM/2016 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: ITA NO.87/MUM/2015 NATIONAL HEALTH & EDUCATION SOCIETY 3 12. REGARDING THE ARGUMENT PERTAINING TO WHETHER THE PHARMACY SHOP IS AN INTEGRAL PART OF THE HOSPITAL BUSINESS, AS ME NTIONED 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. ADDITIO NAL COMMISSIONER OF INCOME TAX (1997) 224 ITR 310 (SC), THE SUPREME COU RT HAS OBSERVED, WHILE CONSTRUING THE PROVISIONS OF SECTION 10(22) THAT TH E 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 INCIDEN TALLY 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 T HE OBJECT IS NOT TO MAKE A PROFIT. AGAIN, IT IS A WELL SETTLED POSITION IN LA W THAT THE DOMINANT NATURE OF THE PURPOSE FOR WHICH THE TRUST EXISTS HAS TO BE CONSID ERED. 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 A RE TAKEN INTO ACCOUNT BY THE CHIEF COMMISSIONER ARE TO BE HAD REGARD TO, IT IS E VIDENT 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 PHILANTHROPI C 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 T HEIR RELATIVES. THOUGH THE MEMBERS OF THE GENERAL PUBLIC ARE NOT PROHIBITED FR OM USING THE FACILITY, THE CRUCIAL QUESTION TO ASK OR THE TEST TO ANSWER IS WH ETHER THE ESTABLISHMENT OF A CHEMIST SHOP IS INCIDENTAL OR ANCILLARY TO THE DOMI NANT OBJECT AND PURPOSE WHICH IS TO SET UP AN CONDUCT A HOSPITAL FOR PHILANTHROPI C PURPOSES. AS A MATTER OF FACT, SECTION 10(23C) PERMITS THE ACCUMULATION OF I NCOME UPTO A CERTAIN STIPULATED AMOUNT OVER A STIPULATED PERIOD. IN OUR VIEW, THE CHIEF COMMISSIONER OF INCOME TAX HAS CLEARLY MISAPPLIED H IMSELF IN LAW BY HAVING REGARD TO A CLEARLY ANCILLARY OR INCIDENTAL ACTIVIT Y AND ELEVATING IT TO THE STATUS OF THE DOMINANT PURPOSE FOR WHICH THE HOSPITAL HAS BEE N ESTABLISHED. RUNNING THE CHEMIST SHOP IN THE PRESENT CASE IS NOT THE DOMINAN T 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 IMPOR TANCE SO AS TO CAST DOUBT ON THE TRUE NATURE AND CHARACTER OF THE HOSPI TAL WHICH IS CONDUCTED BY THE PETITIONER. THE CHIEF COMMISSIONER HAS ACTED C ONTRARY TO THE JUDGMENTS OF THE SUPREME COURT WHICH HOLD THE FIELD CONSEQUENT U PON WHICH THE IMPUGNED ORDER WOULD HAVE TO BE SET ASIDE. 13. FROM THE ABOVE, IT IS CLEAR THAT THE RUNNING O F A PHARMACY IS A NECESSARY REQUIREMENT FOR RUNNING OF A HOSPITAL. I T IS IMPOSSISBILITY FROM MEDICAL POINT OF VIEW THAT THE HOSPITAL CAN RUN WIT HOUT PHARMACY SHOP IN THE PREMISES OF THE HOSPITAL. CONSIDERING THE SAME, TH E HONBLE HIGH COURT HAS HELD THAT HAS HELD THAT MAINTENANCE OF A PHARMACY SHOP IS ANC ILLARY TO THE DOMINANT OBJECT OF RUNNING OF A HOSPITAL AND THUS, IT IS AN INTEGRAL PART OF THE ITA NO.87/MUM/2015 NATIONAL HEALTH & EDUCATION SOCIETY 4 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 MEDI CAL REPORTS. IT IS NOT THE CASE OF THE REVENUE THAT THE PROFITS EARNED ON PHAR MACY WAS NOT SPENT FOR THE OBJECTS OF TRUST. THEREFORE, WE FIND, THAT THE CITE D 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 BU SINESS 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 TRAD ING OF MEDICINES, WHICH IS AN INTEGRAL PART OF THE HOSPITAL ACTIVITIES, IS NOT TH E REQUIREMENT OF THE LAW ON THE FACTS OF THIS CASE. THUS, WE AFFIRM THE ASSESSEES CONTENTION THAT THE PHARMACY SHOP IS AN INTEGRAL PART OF THE HOSPITAL BUSINESS A ND THE SAME IS NOT HIT ADVERSELY BY THE CONDITIONS SPECIFIED IN THE PROVIS IONS 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 OBJEC TS OF THE TRUST, THE CONDITIONS RELATING TO MAINTENANCE OF SEPARATE BOOKS OF ACCOUN TS 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. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 7 TH AUGUST 2016. SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED : 17 TH AUGUST, 2016. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBA