9 Section 11(4A) – Income from pharmacy shop run by a charitable hospital – Operation of pharmacy shop was intrinsic to the activities of running of hospital and hence, did not constitute business.

DCIT
(Exemption) vs. National Health & Education Society (Mumbai)

Members: Joginder Singh (J.M.) and Manoj
Kumar Aggarwal (A.M.)

I.T.A. No.1958/Mum/2016

Assessment Year: 2012-13.  Date of Order: 10^th January, 2018

Counsels for Revenue / Assessee:  H. N. Singh / S. C. Tiwari and Rituja Pawar

FACTS

The assessee trust is registered u/s. 12A
with DIT (Exemptions) and also registered with Charity Commissioner,
Bombay.  During the assessment
proceedings, the AO noted that the trust was running a pharmacy shop in the
hospital and achieved turnover of Rs.42.83 crore with net surplus of Rs.16.73
crore. The turnover of the shop constituted about 12.82% of total hospital
collections. The income from the shop, in the opinion of the AO, constituted
business income in terms of section 11(4A). The assessee defended the same on
the ground that the drugs were supplied only to in-patients upon consultant’s
prescription and the charges of the drugs formed part of final patients’ bills.
However, the AO noted that the Trust Deed did not bar the hospital from selling
medicines to outsiders and the activity of pharmacy shop was systematic
business activity. The AO further noted that the trust was not maintaining
separate books of accounts for the shop. Finally, the net surplus of Rs.16.73
crore earned from the shop was assessed as business income against which
exemption under section 11 was denied.

Aggrieved, the assessee contested the same
successfully before the CIT(A), where the CIT(A), relying upon the order of its
predecessor in AYs 2010-11 & 2011-12, allowed the appeal of the assessee on
the premises that operation of the pharmacy shop was intrinsic to the
activities of the assessee and not incidental, and did not constitute business
and therefore, the provisions of section 11(4A) were not applicable.

In appeal filed before the Tribunal, the
revenue contested the findings of the CIT(A) on the ground that the assessee
had not maintained separate books of accounts for pharmacy shop and therefore,
failed to fulfill the conditions envisaged by section 11(4A).

HELD

The Tribunal noted that the issue had
already been decided in assessee’s favour by first appellate authority for AY
2010-11 & 2011-12. Also, it was noted that the Mumbai Tribunal, in the
assessee’s own case vide ITA No.87/Mum/2015 order dated 17/08/2016 for AY
2010-11, after considering the judgement of the Bombay High Court in Baun
Foundation Trust vs. CCIT [2012 73 DTR 45 (Bom)] and Mumbai Tribunal in
Hiranandani Foundation vs. ADIT [ITA Nos. 560-563/Mum/2016 order dated
27/05/2016] had upheld the stand of the CIT(A). Since the revenue was
unable to bring any contrary facts on record and distinguish the facts of
earlier years with that of the impugned assessment year, the Tribunal dismissed
the revenue’s appeal.