2016 (6) TMI 1486 - AT - Income Tax

Assessment of trust - claim of depreciation - AO disallowed the claim of depreciation observing that it would amount to double deduction - HELD THAT - As decided in . M/s. G.D. Birla Medical Research and Educational Foundation 2016 (2) TMI 901 - BOMBAY HIGH COURT relying upon another decision of Institute of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY HIGH COURT a trust can claim depreciation on assets, even if, cost of assets has been fully allowed as application of income under section 11 in past years - There is no question of double deduction in allowing the depreciation in respect of assets acquired and used by the trust. Assessment of income from the pharmacy store as business income - addition invoking provisions of section 11(4A) - treating the receipts from the pharmacy were separate from the charitable activity of the assessee - 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 - HELD THAT - Bombay High Court in the case of Baun Foundation Trust 2012 (4) TMI 172 - BOMBAY HIGH COURT 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 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. Asobserved 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. 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 - Decided in favour of assessee.

Summary

Issues:
1. Claim of depreciation by a charitable trust.
2. Treatment of income from a pharmacy store run by a charitable trust.

Claim of Depreciation:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the claim of depreciation by a charitable trust for the assessment year 2010-11. The Revenue contended that allowing depreciation on assets already claimed as application of income would result in double deduction. However, the Judicial Member relied on the decision of the Bombay High Court and allowed the claim of depreciation. The Judicial Member cited a similar decision by the Bombay High Court in another case, emphasizing that there is no question of double deduction in such cases. The grounds raised by the Revenue were dismissed based on the precedents cited by the Judicial Member.

Treatment of Income from Pharmacy Store:
The second issue involved the treatment of income from a pharmacy store run by the charitable trust. The Assessing Officer treated the pharmacy store's income as separate business income, invoking section 11(4A) of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) overturned this decision, stating that the pharmacy was integral to the trust's activities of providing medical relief. The trust argued that the pharmacy was essential for providing timely medical aid to patients and was not run as a separate business. The trust cited a Bombay High Court decision and a Tribunal ruling to support their position. The Tribunal agreed with the trust, emphasizing that the pharmacy was an integral part of the hospital's operations and not a separate business activity. The Tribunal concluded that the trust fulfilled the conditions required under the law and dismissed the Revenue's grounds on this issue.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the decisions of the Commissioner of Income Tax (Appeals) regarding the claim of depreciation and the treatment of income from the pharmacy store. The Tribunal's decision was based on legal precedents and interpretations of relevant provisions of the Income Tax Act. The judgment was pronounced on 15.06.2016, with all grounds raised by the Revenue being dismissed.