2016 (11) TMI 381 - AT - Income Tax

Exemption u/s 11 - income from pharmacy store/pharmacy shop situated at the premises of the hospital - whether activity of running a pharmacy shop is incidental to the attainment of the objects of the trust as well as running shop is not a planned activity, though assessee is paying VAT on sales, with an intention of earning income side by side? - Held that - Hon ble jurisdictional High Court in Baun Foundation Trust vs Chief Commissioner (2012 (4) TMI 172 - BOMBAY HIGH COURT ) wherein, identically, the activity of chemist of was held to be incidental or ancillary to the dominant object and purpose to run a hospital. The Hon ble Court held that running a chemist shop is not the dominant object for the purpose trust, therefore, the assessee s application was allowed u/s 10(23C) (via) of the Act, by holding that application of approval cannot be rejected on the ground that running of a shop in the hospital is incidental for the purposes of the hospital. In the present appeal also, the chemist shop is part and partial of the hospital being incidental/ancillary to achieve the objects of the hospital, therefore we decide the sole issue urged by the assessee in his favour.

Summary

Issues:
1. Appeal against order allowing exemption u/s 11 of the Income Tax Act for income from pharmacy store.
2. Interpretation of whether pharmacy store income is incidental to trust's main activity for exemption u/s 11.

Analysis:
1. The appeal was filed by the revenue against the order passed by CIT (Appeals)-1 for the Asst. Year 2012-13. The assessee, a registered society running a hospital, filed a return claiming exemption u/s 11 of the Act. The assessing officer brought income from the pharmacy store to tax, citing VAT payments. The CIT(A) allowed the appeal, following a previous order in the assessee's favor for A.Y. 2010-11. The revenue challenged this decision.

2. The revenue raised two main grounds of appeal. Firstly, questioning the treatment of pharmacy shop income as exempt u/s 11(4A) of the Act, arguing that running the shop was not incidental to the trust's objectives. Secondly, disputing the exemption claim by pointing out the profit earned from the pharmacy store. The Departmental Representative contended that the trust was not entitled to exemption as it operated the pharmacy store for profit. The Authorized Representative cited previous Tribunal decisions favoring the assessee.

3. The Tribunal analyzed the provisions of section 11(4A) and relevant case law. It was noted that the trust's business income could be exempt if it was incidental to the trust's objectives. Referring to various judgments, it was established that the dominant nature of the trust's purpose had to be considered. The Tribunal found that the pharmacy shop was integral to the hospital's functioning and upheld the CIT(A)'s decision based on previous rulings and the trust's objectives.

4. Given the previous decisions by a co-ordinate Bench in the assessee's case, the Tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal. The Tribunal found no reason to deviate from the view taken by the co-ordinate Bench and ruled in favor of the assessee. Consequently, the appeal filed by the revenue for the Asst. Year 2012-13 was dismissed.

This judgment clarifies the interpretation of income tax provisions regarding the exemption of business income for trusts and institutions, emphasizing the incidental nature of activities to the main objectives of the entity.