2016 (8) TMI 1490 - AT - Income Tax

Grant of exemption u/s. 11 denied - assessee runs a pharmacy store in the hospital for profit and earned profit from pharmacy store and not covered in the charitable activity - CIT(A) reversed the addition by the AO holding that the running of pharmacy was not a business activity of the assessee as the same was as per the objectives of the trust - HELD THAT - The pharmacy store is an integral part of any hospital and can not be treated as business activity. Had the assessee operated a pharmacy store without running a hospital , then the activity would have been classified differently. Issue decided in favour of assessee in HIRANANDANI FOUNDATION VERSUS ASST. DIRECTOR OF INCOME TAX, EXEMPTION 2 (1) , MUMBAI. 2016 (7) TMI 260 - ITAT MUMBAI as held pharmacy shop is an integral part of the hospital business and the same is not hit adversely by the conditions specified in the provisions 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 objects of the trust, the conditions relating to maintenance of separate books of accounts are met within the meaning of section 11(4A) of the Act. Accordingly, grounds raised by the assessee are allowed

Summary

Issues:
Grant of exemption u/s. 11 of the Income Tax Act based on the nature of activities conducted by the assessee trust.

Analysis:
The appeal pertains to the grant of exemption u/s. 11 of the Act for A.Y. 2010-11, specifically challenging the CIT(A)'s decision regarding the treatment of income from a pharmacy store run by the assessee trust. The AO initially treated the pharmacy store's income as business income, not charitable activity, leading to the dispute. However, the CIT(A) reversed this decision, emphasizing that the pharmacy store's operation aligned with the trust's objectives, hence qualifying for exemption u/s. 11.

During the proceedings, the assessee's counsel referenced relevant legal precedents, including a decision by the Hon'ble Bombay High Court and a co-ordinate Bench ruling, to support the contention that the pharmacy store's operation was integral to the hospital's functioning and not a standalone business activity. The learned DR representing the revenue concurred with the assessee's arguments, acknowledging the alignment of the pharmacy store's operation with the trust's charitable objectives.

The Tribunal carefully analyzed the facts and legal arguments presented. It observed that the pharmacy store's operation within a hospital setting is inherent to a hospital's functioning and cannot be construed as a separate business activity. Drawing parallels to a previous co-ordinate Bench decision, the Tribunal reiterated that the pharmacy's operation was ancillary to the hospital's core purpose, as confirmed by the utilization of profits for the hospital's benefit. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

In conclusion, the Tribunal affirmed that the pharmacy store's operation within the hospital was integral to the hospital's activities and aligned with the trust's charitable objectives. By applying the legal principles established in previous judgments, the Tribunal upheld the grant of exemption u/s. 11 to the assessee trust, emphasizing the pharmacy's ancillary role in supporting the hospital's philanthropic mission.

This comprehensive analysis of the issues involved in the judgment showcases the meticulous consideration of legal principles and factual alignment with the trust's charitable objectives, resulting in the dismissal of the revenue's appeal and the affirmation of the CIT(A)'s decision regarding the grant of exemption u/s. 11 of the Income Tax Act.