2023 (8) TMI 500 - AT - Income Tax

Assessment of trust - surplus out of Pharmacy store should be treated as Business Income u/s 11(4A) - charitable activity u/s 2(15) - as per assessee Pharmacy store is not incidental to the attainment of the objects of the Assessee trust - HELD THAT - 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. 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. 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. As per 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. 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), 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. Decided against revenue.

Summary

Issues Involved:
The issues involved in this case are whether the surplus from the pharmacy store of the Assessee should be treated as Business Income under section 11(4A) of the Income Tax Act 1961, and whether the Assessee has maintained separate books of accounts in respect of the pharmacy store as required by law.

Issue 1: Treatment of Pharmacy Store Surplus as Business Income:
The Revenue Department appealed against the order of the Ld. Commissioner treating the surplus from the pharmacy store as incidental to the dominant charitable object of running the Hospital by the Assessee. The AO had added the surplus of Rs. 1,72,62,379/- as Business Income under section 11(4A) of the Act, based on the turnover and profit percentage of the pharmacy store. The Ld. Commissioner, relying on relevant judgments, held that the pharmacy store was ancillary to the hospital's charitable purpose, and the Assessee had maintained separate books of accounts for the pharmacy store, meeting the requirements of section 11(4A).

Issue 2: Compliance with Section 11(4A) Requirements:
The key contention was whether the Assessee had fulfilled the conditions of section 11(4A) of the Act. The AO argued that the pharmacy store's activities were not incidental to the trust's objectives, while the Assessee maintained that the pharmacy store was essential and ancillary to the hospital's purpose. The Ld. Commissioner found that the Assessee had maintained separate books of accounts for the pharmacy store, as mandated by section 11(4A), and that the income from the pharmacy store was indeed incidental to the hospital's main charitable objective.

Conclusion:
The Appellate Tribunal upheld the Ld. Commissioner's decision, dismissing the Revenue Department's appeal. It was held that the pharmacy store's income was incidental to the dominant object of running the hospital, and the Assessee had complied with the requirements of section 11(4A) by maintaining separate books of accounts for the pharmacy store. The Tribunal found no basis to interfere with the Ld. Commissioner's order, as it was in accordance with the law and supported by relevant judgments.