2024 (11) TMI 151 - AT - Income Tax

Exemption u/s 11 - treating surplus arising out of pharmacy store in the assessee hospital, to be business income - whether running a pharmacy was incidental to the main objects of running a Hospital and Research Centre and hence would not be hit by the provisions of Section 11(4A)? - HELD THAT - The activity of medical facility and hospital are achieving the object of medical relief. The ld. AO treated the activity of the pharmacy store is nature of business. The separate books of accounts are cardinal requirement for running pharmacist store u/s 11(4A) of the Act. The ld.AO mention in argument that the maintenance of medical shop is incidental towards activity of the assessee. The pharmacy store is only serving to the admitted patient not the outsider. The issue is squarely covered and already decided in assessee s own case by the order of the co-ordinate bench of ITAT 2016 (6) TMI 1486 - ITAT MUMBAI and the order of the Hon ble jurisdictional High Court in assessee s own case 2022 (6) TMI 1515 - BOMBAY HIGH COURT - Further, the medical store is an integral part of the assessee s activities. Deduction @15% on the gross receipts u/s 11(1)(a) - as stated that the assessee has actual deficit 1.85 crore as per claim of expenses but pursuing provision U/s 11(1)(a) of the Act claimed compulsory set apart amount of Rs. 28.35 crore and consequently claimed deficit amount to Rs. 30.20 crore is not justified - HELD THAT -We note that the claim of set apart on gross receipt is duly covered by the order of the Hon ble Apex Court in Programme for community Organisation 2000 (11) TMI 4 - SUPREME COURT which respectfully followed in the impugned appeal order. We further note that the @15% of income on gross receipt of trust is to be set apart and not on the surplus or deficit. The section 11(1)(a) has not imposed any condition for claiming set apart on surplus or deposit. The view taken by the ld. CIT(A) is justified and we do not find any reason to interfere in this issue.

Issues Involved:

1. Classification of surplus from pharmacy store as business income under Section 11(4A) of the Income Tax Act, 1961.
2. Treatment of running a pharmacy as incidental to the main objects of running a hospital and research center.
3. Reopening of assessment under Section 147 of the Income Tax Act.
4. Deduction of 15% from gross receipts under Section 11(1)(a) of the Income Tax Act.
5. Allowance of provisions for employees' compensated absences and post-retirement medical benefits.
6. Utilization of the Indigent & Weaker Section Patient Fund.

Issue-Wise Detailed Analysis:

1. Classification of Surplus from Pharmacy Store:
The revenue contended that the surplus arising from the pharmacy store should be treated as business income under Section 11(4A) of the Income Tax Act, 1961. The assessee argued that the pharmacy is an integral part of the hospital, serving only admitted patients and not outsiders, thus not constituting a separate business activity. The tribunal referred to previous decisions, including those of the ITAT Mumbai and the Bombay High Court, which held that the pharmacy's operations were incidental and integral to the hospital's charitable activities. Consequently, the surplus was not treated as business income, and the appeal on this ground was dismissed.

2. Running a Pharmacy as Incidental to Hospital Operations:
The tribunal reaffirmed that running a pharmacy within the hospital premises is incidental to the hospital's primary objective of providing medical relief. The pharmacy's operations are not independent but are essential to the hospital's functioning, as they provide timely medical aid to patients. This view was supported by previous judicial decisions, and the tribunal upheld the CIT(A)'s decision that the pharmacy's surplus should not be classified as business income.

3. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment, arguing that the jurisdictional conditions under Sections 147 and 151 were not met, and that the reassessment proceedings were initiated beyond four years without any failure on the assessee's part to disclose necessary facts. However, since the revenue's appeal was dismissed, the cross-objections regarding the reopening of assessment were withdrawn by the assessee, and no separate adjudication was required.

4. Deduction of 15% from Gross Receipts:
The revenue argued against the deduction of 15% from the gross receipts under Section 11(1)(a), claiming there was no surplus available for accumulation. The tribunal, citing the Supreme Court's decision in the Programme for Community Organisation case, upheld the CIT(A)'s decision, allowing the deduction based on gross receipts, irrespective of surplus or deficit. The tribunal found no reason to interfere with the CIT(A)'s view, and the appeal on this ground was dismissed.

5. Allowance of Provisions for Employees' Benefits:
The tribunal considered the provisions for employees' compensated absences and post-retirement medical benefits. The assessee contended that these provisions should not impact taxation. The tribunal noted that these issues were of academic interest and did not require separate adjudication, as they had no fiscal benefit for the revenue. Consequently, the appeal on these grounds was dismissed.

6. Utilization of the Indigent & Weaker Section Patient Fund:
The revenue questioned the allowance of amounts debited to the Indigent & Weaker Section Patient Fund, which were not utilized during the year. The tribunal found that the issue was adequately addressed in the CIT(A)'s decision, which was consistent with judicial precedents. The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

Conclusion:
The tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all grounds. The cross-objections filed by the assessee were also dismissed as withdrawn, given the dismissal of the revenue's appeals. The tribunal's decision was consistent with previous judicial rulings, affirming the integral role of the pharmacy in the hospital's operations and the applicability of deductions under the Income Tax Act.

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