THE BHATIA GENERAL HOSPITAL,MUMBAI V. DY COMMISSIONER OF INCOME TAX (EXEMPTION)-2(1), MUMBAI

ITA 4666/MUM/2023

AI Insights

The case involves The Bhatia General Hospital, a public charitable trust, which appealed against the order of the National Faceless Appeal Centre (NFAC) that confirmed the addition of Rs. 15,08,18,086 to the hospital's income, treating it as taxable business income under section 11(4A) of the Income Tax Act, 1961. The income in question was from the hospital's pharmacy and chemist divisions. The Tribunal examined whether these divisions were integral to the hospital's charitable purposes and whether separate books of account were maintained as required under section 11(4A). The Tribunal referenced several precedents and the provisions of the Act to conclude that the income from these divisions was not business income but part of the hospital's charitable activities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474468 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Other Referred Cases: Commissioner of Income Tax(Exemption) vs M/s Jaslok Hospital & Research Centre, Baun Foundation Trust vs. Chief Commissioner of Income Tax, Hiranandani Foundation vs. ACIT (E), Mumbai, Radhasoami Satsang vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SRINIVASU
• Assessee Lawyers: NITESH JOSHI; VIRAL SHAH; MAINTAINING SEPARATE BOOKS OF ACCOUNT
• Keywords: Business income; Opportunity of being heard; Question of law; Principle of natural justice; Earning of tax free income; Charitable institution; Benefit of exemption
• Section: 142(1); 143(2); 250; 11; 12A; 73; 12; 10(23C)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No.4666/Mum/2023 (Assessment Year : 2014-15) The Bhatia General Hospital TukaRAM Javji Road Mumbai-400 007 PAN : AAATT3440K vs DCIT (Exemption)-2(1), Mumbai Room No.608, 6th Floor, Cumballa Hill, MTNL Building, Peddar Road Mumbai-400 026 APPELLANT RESPONDENT Assessee by : Shri Nitesh Joshi & Shri Viral Shah Respondent by : Shri S Srinivasu CIT DR Date of hearing : 18/10/2024 Date of pronouncement : 17/02/2025 O R D E R PER RAJKUMAR CHAUHAN (JM): This appeal is directed against the order dated 27/10/2023 passed by National Faceless Appeal Centre, Delhi (NFAC)[hereafter called ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Assessment Year 2014-15. Vide this order, the Ld.CIT(A) has confirmed the addition made by the Ld.AO in his order dated 13/12/2016 to the tune of Rs.15,08,18,086/- of the assessee hospital considering the pharmacy business income of the assessee hospital as taxable income by applying the provisions of section 11(4A) of the Act. 2 ITA No.4666/Mum/2023 The Bhatia General Hospital Aggrieved by the impugned order, the assessee is in appeal before the Tribunal raising the following grounds:- “Denial of exemption for income of Pharmacy division “1) The Ld. CIT(A) erred in confirming the denial of exemption by the AO under section 11 in respect of the income of the Pharmacy division. 2) The Ld. CIT(A) failed to appreciate the fact that the pharmacy division of the Trust was an integral part of the Hospital itself, the revenues being that portion of the hospital bill of in-house patients representing value of medicines used for their treatment while admitted in the hospital. 3) The Ld. CIT(A) erred in confirming the addition of the surplus of pharmacy division as business income, by applying the provisions of section 11(4A). 4) The Ld. CIT(A) failed to appreciate that there had never been any denial of exemption in respect of the pharmacy division in the past, thereby violating the principle of consistency. 5) Without prejudice to the foregoing, the Ld. CIT(A) erred in confirming the addition of an amount equal to the total receipts from the pharmacy division, instead of restricting the addition only to the surplus derived from the said division. Denial of exemption for the income from Chemist shop 6) The Ld. CIT(A) erred in confirming the denial of exemption by the AO under section 11 in respect of the income of the Chemist Shop. 7) The CIT(A) failed to appreciate the fact that the chemist shop was an activity incidental or ancillary to the dominant object and purpose of the Trust to run the 3 ITA No.4666/Mum/2023 The Bhatia General Hospital hospital, for which separate books of account were maintained, as required by section 11(4A), and thus eligible for exemption under section 11. 8) Without prejudice to the foregoing, the Ld. CIT(A) erred in confirming the addition of an amount equal to the total receipts from the Chemist shop, instead of restricting the addition only to the surplus derived from the said shop. Opportunity of Hearing Not Provided Opportunity of Hearing not provided 9) The Ld. CIT(A) erred in not granting an opportunity of being heard through video conferencing, as mandated under the Faceless Scheme of Appeals, also violating the principles of natural justice. Relief Sought:  Your Appellant prays that the exemption be granted to the Appellant in respect of the income from the Pharmacy division and the Chemist shop of the Appellant Hospital under section 11.  Alternatively, Your Appellant prays that only the net income from the Pharmacy Division and the Chemist Shop be taxed. Your Appellant craves leave to add to, alter, delete or modify all or any the above grounds at the, time of or before the hearing.” 2. Following points for determination arise before us on the basis of summarized grounds as under:- (1)Whether the Pharmacy Division of the assessee hospital is an integral part of the dominant purpose of hospital itself and the provisions of section 11(4A) are not attracted.? 4 ITA No.4666/Mum/2023 The Bhatia General Hospital (2) Whether the running of the chemist shop by the assessee hospital is an incidental or ancillary to the dominant object of the assessee trust for running its hospital and the requirement of section 11(4A) are fulfilled by the assessee by maintaining separate books of account? 3. The brief facts of the case as culled out from the proceedings before the lower appellate authorities asw under:- 3.1 The assessee, Bhatia General Hospital is a public charitable trust carrying on the activities of running the hospital for philanthropic purposes. The trust came into existence vide section 12A of Income Tax Act, 1961 as a charitable organization with Commissioner of Income Tax (Exemption), Mumbai vide Registration No.TR/2763 dated 29/08/1975. The Commissioner of Income tax (Exemptions) Mumbai vide letter dated 29/03/2016 considered that the new trust deed of the Assessee-Hospital which was amended on 15/03/2004 has been taken on record and also stated that the registration certificate u/s 12A No.TR 2763 dated 29/08/1975 shall continue to be valid. The case was selected for scrutiny and notice u/s 143(2) of the Income Tax Act was duly served upon the Appellant dated 31.08.2015. Further, notice u/s 142(1) dated 20.06.2016 was issued to the Assessee-Hospital. Assessee-Hospital complied to all the notices and filed details as called for from time to time through its Chartered Accountant and the same were considered by the Ld.AO, however, the Ld.AO was of the opinion that the assessee trust runs a pharmacy store in its hospital premises and therefore, required the assessee trust to show cause as why the surplus out of pharmacy store should not be treated as business income under section 11(4A) and also why the shortfall should not be disallowed and also the actual expenses in Indigent Patient Fund account should not be treated as business income. 5 ITA No.4666/Mum/2023 The Bhatia General Hospital Against the said show cause the Appellant / Assessee vide letter dated 21/12/2016 has furnished a detailed submission on the alleged surplus of pharmacy and provisions of section 11(4A). The Appellant/Assessee submitted that running of the pharmacy by Appellant / Assessee is an integral part and interwoven with the activities of running of hospital. The patients, undergoing any treatment in the hospital, need medicines including life saving drugs, without which it is not possible for a hospital to treat its patients. Hence, pharmacy is a very important establishment for any hospital. Even the patients operated also require medicines and if the medicines are not provided, the result would be fatal. Also, providing medicines to patients can never be treated as business income. Further, providing medicines to OPD patient and also to others very well falls within the meaning of Charitable Object as defined under section 2(15) of the Income-tax Act, 1961. Appellant/Assessee is to supply medicine. Appellant/Assessee has necessary permission to run the chemist department. It is observed that the pharmacy income is 3 times of the total surplus of the trust and the pharmacy income is 17.99% of total hospital receipt. The Ld.AO was of the opinion that running of pharmacy is the major activity carried out by the hospital and it has made substantial profit from the pharmacy store and the Assessee-trust has not maintained separate books of account of the pharmaceutical department and due to larger income generated in pharmacy business of the hospital, it cannot be said that the pharmacy division of the assessee trust is for the philanthropic purpose. The Ld.AO was of the opinion that the net profit realized from pharmaceutical department required to be treated as business income and accordingly brought to tax. Similarly regarding the income from the Chemist division of Rs.44,49,566/-, the Ld.AO was of the opinion that the 6 ITA No.4666/Mum/2023 The Bhatia General Hospital nature, volume, frequency and surplus of chemist division shows that it is a systematic business activitiy of the assessee trust because the trust deed of the assessee trust does not bar hospital from selling medicines from outside. The Ld.AO, therefore, did not agree with the contention of the assessee that the income of the hospital from pharmacy and chemist division does qualify to be exempt income and is not required to be added to the total income of the assessee. 3.2 Aggrieved by the order of the Ld.AO, the assessee filed appeal before the CIT(A), who, vide impugned order, upheld the order of the Ld.AO with regard to the addition made on account of pharmacy and chemist division income. Aggrieved by the impugned order, the assessee is in appeal before us. 4. We have heard the Ld.AR as well as the Ld.DR on behalf of the parties and also examined the record. The Assessing Officer has dealt with the issue of pharmacy and chemist division income in para 4.4 to 4.11 of his order and the same are extracted below:- “4.4. Assessee trust has contended that it does not sell drugs to outsiders but charges the amount for drugs used in the treatment for patients entirely as prescribed by treating consultants. These are charge to patient at MRP and form part of final patient bill. Pharmacy store does not sell any medicine to outside patients. In view of this the said surplus may not be taxed as business income as proposed. 4.5. Assessee trust has not submitted any further argument and supporting documents in respect of its claim and defense on this issue. 4.6. Though assessing claims that it does not sell medicines to outside patients meaning which are not registered at hospital as patients indoor or OPD, trust deed of assessee 7 ITA No.4666/Mum/2023 The Bhatia General Hospital trust does not bar hospital from selling medicines to outsiders. Nevertheless it sells medicines to its indoor and outdoor patients. 4.7. It can be seen that income of pharmacy store is around 17.99% of total hospital receipt. Thus seeing its turnover it cannot be said to be minor, accidental and mere accompanying activity as is expected when the words used in the law are \"incidental to charitable purpose\". 4.8. The nature, volume, frequency and surplus of these transactions clearly shows that it is systematic business activity of the assessee trust. Moreover considering these facts it cannot be said to be minor, accidental and mere accompanying activity to its main objects. 4.9. Second and equally important conditions to be fulfilled by assessee trust to claim exemption of this pharmacy surplus is to maintain separate books of accounts in respect of the same. However assessee trust has not maintained separate books of accounts in respect of pharmacy store. Here merely maintaining some ledgers of medicines purchase and sales does not amount to maintaining separate books of accounts. Assessee trust has to maintain separate books of accounts for its every receipt and expenses in respect of pharmacy and submit separate balance sheet and income expenditure statement in respect of pharmacy store while filing the return of income as it does in case of its other activities. The same has not complied with by assessee trust. Thus, it is clear that assessee trust has not maintained separate books of accounts in respect of pharmacy store and has not complied with that particular condition as required under the law.” 4.10. Even though assessee trust has got very good profit percentage, it may claim at appellate proceedings that it does not have any profit motive and if at all there is any surplus the same cannot be appropriated by trustees or any others. However, it may be seen that in view of amendment in definition of charitable purpose with effect from 1.4.1984; whether there is profit motive or not is not relevant. By the said amendment, the words \"carrying on activity of profit\" have been deleted. Further assessee trust may 8 ITA No.4666/Mum/2023 The Bhatia General Hospital claim that even this surplus of pharmacy store is spent on charitable purpose of medical relief. However this argument of assessee trust will not be relevant as two main conditions to be fulfilled u/s. 11(4A) are not met by assessee trust. 4.11. In view of above detailed discussion I hold that income of Rs. 15,08,18,086/- out of pharmacy store is treated as business income under section 11(4A) separately and taxed accordingly.” 5. During appeal proceedings before the CIT(A), the assessee has raised these issues as grounds 1 & 2 and the same have been adjudicated by Ld.CIT(A) in para 9, which is extracted as below:- “9. Decision on Grounds of Appeal: During the appellate proceedings, Statement of facts, Grounds of appeal, Assessment Order and appellant’s submission was carefully scrutinized by the under signed. Grounds 1& 2: It is evident from Para 4.2 and Para 4.9 of the Assessment order that the books of accounts for the Pharmacy/chemist income has not been maintained by the appellant. The appellant has neither disputed nor produced any documents or submissions in their regard. The second condition of Section 11(4A) clearly requires maintaining of separate books of accounts for claiming exemption. The case laws quoted by the appellant does not comes to the rescue of the case as the facts are clearly different and distinguishable as in the cases mentioned by the appellant separate books and accounts were maintained whereas in the present case it is not the case. Appellant has not complied with the second condition of section 11(4A) of the Income Tax Act, 1961. Appellant's argument of relief provided in Finance Act 2015 regarding restricting the income from the specified business activity restricted to 20% of total receipts of the trust also does not help as the said finance act is effective from 01.04.2015, ie for FY 2015-16 (AY 2016-17) whereas the period under consideration pertains to FY 2013-14 (AY 2014- 15). Appellant's argument of Principal of consistency is rejected as every AY is different and when new facts emerges assessments needs to be in line with it. In view of the above, order of AO is upheld and the grounds are noted as dismissed.” 9 ITA No.4666/Mum/2023 The Bhatia General Hospital Argument on behalf of the Parties & Analysis 6. The Ld.AR on behalf of the assessee-appellant has submitted that the Ld.AO as well as Ld.CIT(A) has committed illegality in holding that the pharmacy division of the assessee hospital is a separate and distinct activity of the hospital and since separate accounts are not maintained for the pharmacy business, provisions of section 11(4A) are attracted. It is argued that the said observation and conclusion by the Ld.CIT(A) is contrary to the law laid down by various benches of ITAT and the Hon’ble High Courts including the jurisdictional High Court of Bombay. He further argued that since the Chemists division of the assessee hospital is an integral part of the dominant purpose of the hospital, therefore, there was no requirement of maintaining a separate books of account and the assessee has maintained the accounts of the hospital including the pharmacy business, therefore, the assessee appellant was entitled to exemption of the income fom pharmacy division under section 11 of the Act. 7. The Ld.AR has referred and relied upon the judgement of the Hon’ble jurisdictional High Court in ITA No.1920 /2017 titled as Commissioner of Income Tax(Exemption) vs M/s Jaslok Hospital & Research Centre, order dated 09th June, 2022 wherein the order of ITAT, Mumbai in ITA No.6853/Mum/2014 dated 15/06/2016 was upheld and it is argued that the facts and circumstances and the issue before the co-ordinate bench of Mumbai Tribunal in above appeal was similar to the issue in this case. We have examined the order of the Ld.co- ordinate bench in ITA No. 6853/Mum/2014 for A.Y. 2010-11 (supra) wherein the grounds No.3 & 4 were similar to the grounds raised by the assessee-appellant and the said grounds have been adjudicated in favour of assessee and the appeal 10 ITA No.4666/Mum/2023 The Bhatia General Hospital of the revenue was dismissed and the findings of the co-ordinate bench on these grounds in paras 7 to 9 are relevant and extracted as under:- “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. 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. 9. 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 11 ITA No.4666/Mum/2023 The Bhatia General Hospital 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 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.” 8. Against the order of the co-ordinate bench in ITA No.6853/Mum/2014, the revenue filed appeal before the Hon’ble High Court in ITA No.1920/2017 (supra) and the Hon’ble High Court has dismissed the appeal and confirmed the order of the co-ordinate bench. The findings of the Hon’ble High Court in paras 5&6 are extracted below:- “5. As regards the second issue, i.e., Pharmacy/Chemist Shop run in the Hospital premises of the Respondent -Assessee, the Tribunal had followed the decision of this Court in case of Baun Foundation Trust vs. Chief Commissioner of Income-tax - [2013] 33 taxmann.com 677 (Bombay). The Tribunal has also referred to other decisions of the coordinate benches of the Tribunal. The Division Bench of this Court has taken a view that if on the analysis of fact, it is found that running of Pharmacy/Chemist Shop is not a predominant activity of the Trust and is incidental to dominant object, the Pharmacy cannot be considered as an independent unit. On 12 ITA No.4666/Mum/2023 The Bhatia General Hospital factual position is concerned, the finding of fact has been rendered by the Commissioner of Income Tax (Appeals), the Pharmacy run by the Hospital - Assessee was integrally attached to the activities of the Respondent - Assessee which finding of fact has been confirmed by the Tribunal. Nothing is shown to us how this finding recorded is perverse. Thus, the question sought to be urged cannot be considered as a substantial question of law. 6. There is no merit in the Appeal and the Appeal is dismissed.” 9. In addition, the Ld.AR has also relied upon the following cases:- 1. Pr.CIT(E), Mumbai v. National Health and Education Society (2023) 154 taxmann.com 636 (Bom) 2. Baun Foundation v. CIT : [2023] 33 Taxmann.com 677 (Bom) 3. Hon’ble ITAT, Mumbai in the case of ADIT vs. Saifee Hospital Trust in ITA No.5686/Mum/2011 4. Franciwscan Sisters of St. Joseph Society v. JCIT (e) II (2014) 46 taxmann.com 31 (ITAT, Chennai) 5. Hiranandani Foundation Vs. ADIT (E) 2(1) : (2016) 70 Taxmann.com 321 (ITAT, Mumbai) 6. Radhasoami Satsang Vs. CIT 60 Taxman 248 (SC) 10. On examination of the relied judgements, we are of the considered view that most of the judgements have been mentioned in the order of the co-ordinate bench and the Hon’ble High Court referred supra. Therefore, we do not find any need to separately consider those judgements on the issue before us. 11. The Ld.DR, on the other hand, while supporting the decision of the Ld.CIT(A) has submitted that the Chemist shop can be considered as an integral part of the hospital but running of the pharmacy, in all probabilities, is a separate & independent business activity carried on by the hospital and cannot be considered as an integral part of the assessee hospital and since the separate accounts have not been maintained, therefore, the provisions of section 11(4A) are attracted. 13 ITA No.4666/Mum/2023 The Bhatia General Hospital 12. In rebuttal to the contentions of the Ld.DR, the Ld.AR has taken us to the case of Hon’ble jurisdictional High Court in Pr.CIT(E), Mumbai v. National Health and Education Society (supra) and has submitted that the findings from paras 14 to 21 of the Hon’ble High Court are relevant wherein similar issue has been dealt with and decided in favour of the assessee. To appreciate the arguments of the Ld.AR, the findings of the Hon’ble High Court from paras 14 to 21 are extracted below:- “14. In appeal, the first appellate authority noted that respondent was granted approval under Section 10(23 C) (Via) of the Act with effect from the assessment year 2009-10 on the satisfaction that respondent was existing solely for philanthropic purposes and not for purposes of profit. Therefore. The first appellate authority held that there was no basis to treat the running of pharmacy as a business venture. Running of pharmacy was port of philanthropic activity of running the hospital. No. materials were brought on record by the assessing officer to justify the adverse view taken. Application of section 11 (4A) was not called for. Consequently, the first appellate authority held the addition and taxability of the surplus out of the pharmacy store to be erroneous and accordingly the same was directed to be deleted. 15. When the Revenue preferred appeal before the Tribunal, Tribunal relied upon its decision in the case of Hiranandani Foundation(suprak) which in turn had relied upon the decision of the Supreme Court in Aditanar Educational Institution v . Addl. CIT[1997] 90 Taxman 528/224 ITR 310 and a decision of this Court in Baun Foundation Trust v. Chief CIT [2012] 73 DTR 45 and dismissed the appeal of the Revenue by affirming the order of the first appellate authority. 16. In the case of Hiranandani Foundation, (supra) Tribunal held that running of a pharmacy is a necessary requirement for running of a hospital. It is impossible 14 ITA No.4666/Mum/2023 The Bhatia General Hospital from a medical pojnt of view that a hospital can run without a pharmacy. Maintenance of a pharmacy is ancillary to the dominant object of running of a hospital and thus, it is an integral part of the hospital. 17. In the present case, Chief Commissioner of Income Tax, Mumbai had passed an order dated 07.04.2011 granting approval to the respondent for the purpose of section 10(23C)(via) of the Act for the assessment year 2009-10 and onwards subject to the conditions mentioned therein. When the Chief Commissioner of Income Tax had granted approval to the respondent under the aforesaid provision, it is not understood as to how the assessing officer could have invoked the provisions of section 11(4A) of the Act to construe the activity of the pharmacy as a separate business activity and thereafter to tax the income accrued therefrom. 18. In Aditanar Educational Institution (supra), Supreme Court was considering exemption granted to an educational institution under section 10(22) of the Act. As per section 10(22) of the Act, any income of an university or other educational institution existing solely for educational purposes and not for purposes of profit is not to be included in the total income of the previous year of any person. In the facts of that case, Supreme Court held that after meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. 19. In Baun Foundation Trust (supra)where exemption under Section 10(23C)(via) of the Act was in question, this Court referred to the decision of the Supreme Court in Aditanar Educational Institution (supra)and held that 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 for philanthropic 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 their relatives. Though members of the general public are not prohibited from using the facility, the crucial question to determine is whether the establishment of the chemist shop is incidental or ancillary to the dominant object and purpose which is to set up and conduct a 15 ITA No.4666/Mum/2023 The Bhatia General Hospital hospital for philanthropic purposes'? In the facts of that case it was held that running of the chemist shop was not the dominant object or purpose of the trust. 20. Applying the legal principles set out by the judicial pronouncements as above in the context of the statutory provisions to the facts of the present case, we are of the view that the pharmacy store of the respondent was ancillary to the main object of running the hospital. Therefore, income accrued therefrom was incidental to the dominant object of the respondent i.e. running of the hospital. Thus, the assessing office was not justified in treating the pharmacy store of the respondent as a separate business entity and to hold the surplus amount accrued therefrom as business income under section 1l(4A) of the Act. The lower appellate authorities have rightly interfered with such decision of the assessing officer. We do not find any error or infirmity in the view taken by the first appellate authority as affirmed by the Tribunal.” 21. Consequently, the appeal fails and is accordingly dismissed.” 13. With respect to the reliance upon the judgement of the jurisdictional High Court as mentioned above, the Ld.DR submitted that the facts of the case relied on are different because in that case, including the cases referred by the Hon’ble High Court, the assessee was given approval under section 10(23C)(via) of the Act. But same is not the case of the assessee as they have never applied for the approval under section 10(23C) of the Act. 14. We have noticed that the case of the Ld.AO as well as the Ld.CIT(A) hinges around the belief that the provisions of section 11(4A) were attracted in case of the assessee and since the separate books of account are not maintained, the assessee is not entitled for benefit of exemption under section 11(1) of the Act because the the pharmacy business is not integral and dominant part of 16 ITA No.4666/Mum/2023 The Bhatia General Hospital philanthropic activity of the hospital. Therefore, we deem it necessary to extract the provisions of section 11(4A) as well as section 10(23C)(via) of the Act:- Section 11(4A): “11(4A) Sub section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.” Section 10(23C)(via) “10(23C) any income received by any person on behalf of – (i) to (vi)xxxxxxxxxxxxxxxxxxxxxxxx (via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philantyhropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the *Principal Commissioner or Commissioner+;” 15. During arguments, the Ld.AR has submitted written brief submissions dated 13/01/2025, which are extracted as under:- “1. Section 10(23C) also has a proviso [fifth proviso to Explanation 5 of the Third proviso to section 10(23C)] which is similar to section 11 (4A). Thus, there is no difference with respect to the requirements contained therein. Accordingly, though the decision of the Hon'ble Bombay High Court in the case of PCIT (E) v. National Health & Education Society reported in [2023] 154 taxmann.com 636, was rendered in context of section 10(23C), however, the findings thereof that the pharmacy division is an integral part of the hospital would also be applicable to an assessee claiming exemption under section 11. 2. In any event, there are decisions rendered and submitted before Your Honors' dealing with the exemption claimed under section 11 wherein the decision remains the same that the 17 ITA No.4666/Mum/2023 The Bhatia General Hospital pharmacy is an integral part of the hospital and sub-section (4A) to section 11 is not applicable. Following are the case laws: Hon'ble ITAT, Mumbai in the case of DCIT(E) v. Jaslok Hospital and research Centre in ITA No. 2462/Mum/2024 rendered on 7/10/2024 - Hon'ble ITAT, Mumbai in the case of DCIT(E) v. Karuna Medical Society in ITA No. 1048/Mum/2022 rendered on 27/07/2022 Hon'ble ITAT, Chennai in the case of Franciscan Sisters of St. Joseph Society v. JCIT(E) reported in [2014] 46 taxmann.com 31. 3. The object of the Hospital has been to provide medical relief and running pharmacy division is a part of the said object. The receipt from pharmacy division was only Rs. 15,08,18,086 as against the total receipt of the assessee Hospital of Rs. 83,87,59,868. It itself indicates that running pharmacy was not a predominant object of the hospital but integral to the main object of providing medical relief. In fact, the receipt from the pharmacy division in case of National Health and Education Society (cited supra) was Rs. 37,29,09,641, which is much higher than the pharmacy receipts in the case of the Appellant.” 4. The decision of the Hon'ble Supreme Court in the case of ACIT(E) v. Ahmedabad Urban Development Authority reported in [2022] 143 taxmann.com 278 is not applicable to the facts of the present facts of the case as the said case was in the context of proviso to section 2(15) of the Act which would apply to trusts involved in the advancement of the objects of the general public utility. The Appellant hospital is engaged in providing medical relief.” 16. On the basis of these written submissions, it was orally submitted by the Ld.AR that the case relied upon by the assessee in DCIT(Exemjption) vs Jaslok Hospital And Research Centre (supra) is applicable in the case of the assessee also notwithstanding approval under section 10(23C) is not sought by the appellant assessee. The Ld.AR pointed out that Fifth Proviso to Explanation 5 of the Third Prviso to section10(23C) is similar to section 11(4A) and, therefore, the ratio of the judgment of ITA 1920 of 2017 referred (supra) is available and applicable in the case of the assessee as the facts and circumstances of the assessee case are also similar and fully covered by the judgement of the Hon’ble High Court. We 18 ITA No.4666/Mum/2023 The Bhatia General Hospital have examined the 5th Proviso to Explanation 5 of 3rd Proviso to section 10(23C) of the Act, which is as under:- 10(23C) “10(23C) any income received by any person on behalf of – (ii) to (vi)xxxxxxxxxxxxxxxxxxxxxxxx (via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philantyhropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the [Principal Commissioner or Commissioner]; Provided …………………. Provided further…………… Provided also ………………… Explanation 1 to 4xxxxxxxxxxxx Explanation 5. Notwithstanding anything contained in Explanation 4, where due to circumstances beyond the control of the person in receipt of the income invested or deposited in accordance with the provisions of clause (b) of Explanation 3 cannot be applied for the purpose of which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other purpose in India as is specified in the application by that person and as is in conformity with the objects for which the fund or institution or trust or any hospital or other medical institution referred to in sub-clause (via) is established; and thereupon the provisions of Explanation 4 shall apply as if the purpose specified by that person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of Explanation 3; Provided that …………….. Provided also that …………….. 19 ITA No.4666/Mum/2023 The Bhatia General Hospital Provided also that …………….. Provided also that …………….. Provided also that nothing contained in sub-clause (iv) or sub-clause (v) [or sub- clause (vi) or sub clause (via) shall apply in relation to any income of the fund or trust or institution [or any university or other educational institution r any hospital or other medical institution], being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business.” 17. On comparing this Proviso extracted above to the provision of section 11(4A) of the Act, we have noticed that both the provisions are almost similar and, therefore, we find that the arguments of the Ld.DR with regard to the non applicability of the case of the jurisdictional High Court in Jaslok Hospital And Research Centre ITA 1920/2017 (supra) on the basis of dissimilarity of facts, does not hold water. 18. During arguments, the Ld.DR has made a submission that the assessee has not brought on record any documents / material to show that the surplus of the pharmacy business income has been spent for the philanthropic purpose of the trust. For this, once again, the Ld.AR submitted that the assessee hospital had always been spending this surplus income from the pharmacy division for the philanthropic purpose of the trust. Moreover, in case there is any violation of registration under section 12A of the Act by the Trust, the revenue authorities are always at liberty to take action as permitted by law in case it is found that the assessee is not spending the surplus funds for philanthropic purpose of the trust / hospital. 20 ITA No.4666/Mum/2023 The Bhatia General Hospital 19. On the basis of the above discussion, we are of the considered opinion that the case of the assessee hospital is very well covered by the judgement of the co- ordinate bench in the case of Asst.Director of Income Tax (Exemption)-II(1), Mumbai vs M/s Jaslok Hospital & Research Centre in ITA No.6853/Mum/2014 order dated 15/06/2016 (supra). 20. With regard to the income from the Chemist division, we would like to refer the judgement of the co-ordinate bench “H”, Mumbai in ITA No.912/Mum/2023 for A.Y. 2017-18 wherein similar issue for income from pharmacy division has been dealt with and decided in favour of the assessee and the relevant paragraphs 7.3 to 7.8 are extracted below:- “7.3 In CBDT Circular No. 11/2008 dated 19.12.2008 (Point No. 2.1) as relied upon by the Ld. Commissioner, it has been clarified that the proviso to section 2(15) of the Act will not apply to medical relief etc. and where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities. For clarity relevant clarification reads as under: “The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.” 7.4 No doubt, the Hon’ble High Court in CIT(E), Mumbai Vs. National Health and Education Society (supra) as relied upon by the Ld. DR, dealt with the situation wherein the Pharmacy was used for in-house/captive consumption of the Hospital and not for over the counter sale in general, however, the Hon’ble High Court in the case of Baun Foundation had taken into consideration the situation, wherein the general public were also using the facility/chemist shop and the Hon’ble High Court clearly held that this is a 21 ITA No.4666/Mum/2023 The Bhatia General Hospital facility which is intended to be used predominantly by patients and their relatives. Though the general public is not prohibited from using the facility, the crucial question to ask or the test to answer whether the establishment of chemist shop shall be incidental or ancillary to the dominant object and purpose, which is set up and conduct a Hospital for philanthropic purpose. 7.5 Medicines are one of the most common healthcare interventions and play a significant role in patients' health management. Pharmaceuticals are an integral part of patient care. Admittedly the Assessee is running a Hospital and also having in-house patient’s facilities, therefore, the medicines are essentials for the treatment of in-house patients especially. The Assessee is also giving treatment to out-patients, and therefore out-patients and even outsiders as well, are at their liberty/option to purchase the medicines from the Assessee’s Pharmacy store, as there cannot be any restriction. The Assessee may be on commercial basis but in fact, directly-indirectly providing medical relief by selling medicines to the in-house patients and outpatients and outsiders as well and therefore protected by CBDT Circular (supra) as well. It is also not the case here that the Assessee has established Chemist/Pharmacy store exclusively for outpatients/outsiders and has utilized surplus from the operation of a chemist shop, for other objects than the prescribed objects. Hence on the aforesaid analyazations, we don’t have any hesitation to hold that running of the chemist shop is not only essential but also incidental or ancillary to the dominant object and purpose to run a hospital and thus the Assessee has complied with first condition of section 11(4A) of the Act. 7.6 Coming to the second condition of section 11(4A) of the Act, as to whether the Assessee is maintaining separate books of account in respect of such business/chemist shop. We observe that the Ld. Commissioner has given categorical findings that the Assessee is maintaining separate books of accounts and financial statements for pharmacy store, hence the Assessee also complied with 2nd condition of section 11(4A) of the Act. 7.7 Thus we are in concurrence with the conclusion of the ld. Commissioner that the Assessee-trust has complied with the twin conditions, as set out in section 11(4A) of the 22 ITA No.4666/Mum/2023 The Bhatia General Hospital Act, therefore, the income accrued from Pharmacy store is incidental to the dominant object of running Hospital by the Assessee, hence, the action of the AO is not justified in treating the Pharmacy store of the Assessee as separate business entity and the profits therein as taxable income. 7.8. Resultantly the impugned order, do not requires any interference, as the same does not suffers from any perversity, improprietary and/or illegality.” 21. We have noticed that it is not in dispute that the assessee is running a hospital and is also having in-house patients. Medicines are essential for the treatment of the patients. Similarly, the assessee is also giving treatment to the OPD patients, who are at liberty to purchase the medicines from the chemist shop of hospital. It has been vehemently argued on behalf of the assessee by the Ld.AR that for saving the life and proper treatment of the in-house patients, running of pharmacy division is the most essential requirement for running the assessee hospital and for fulfillment of the dominant purpose of the assessee trust. We, therefore, are of the considered opinion that the facts and circumstances of the assessee’s case are fully covered by the judgement of the co-ordinate benches cited supra. 22. In view of the above discussion, we find that the appellant / assessee fulfills all the requirements which necessitates the running of pharmacy and chemist division in the hospital to achieve the dominant purpose of the trust for which the revenue authority have given approval under section 12A of the Act to the assessee hospital and, therefore, the assessee hospital is entitled for the benefit under section 11(1) of the Act and the income from the pharmacy and chemist division of the assessee cannot be treated as business income from a separate and independent activity carried out by the assessee. Thus, on the basis of 23 ITA No.4666/Mum/2023 The Bhatia General Hospital summarized grounds the points of determination enumerated in the beginning of the order are accordingly decided in the affirmative and in favour of the assessee. We accordingly direct the Assessing Officer to delete the addition. So the grounds raised by the assessee are accordingly allowed. 7. In the result, the appeal filed by the assessee bearing ITA No.4666 /Mum/2024 is allowed, in the above terms. Order pronounced in the open court on 17th day of February, 2025. Sd/- sd/- (AMARJIT SINGH) (RAJKUMAR CHAUHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, दिन ांक/Dated: 17/02/2025 Pavanan Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त CIT 4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "