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TMI Blog2022 (5) TMI 1405X X X X Extracts X X X X X X X X Extracts X X X X ..... arcel of the main activity of running the hospital, the incidental sale of medicines to outside public cannot be considered as the criteria for the denial of exemption and such distinction of to whom the medicines are sold is of no relevance. In any case the assessee is maintaining separate ledger accounts from where the profits are clearly identifiable and given that the transactions of pharmacy is incidental to the business of the hospital and the objects of the Trust, the conditions relating to maintenance of separate books of account are met within the meaning of section 11(4A) of the Act. We respectfully follow the decision of Karnataka Chinmaya Trust [ 2021 (11) TMI 1070 - ITAT BANGALORE] and the principle laid down by the Hon ble Chennai Bench in M/s.Franciscan Sisters of St.Joseph Society [ 2014 (1) TMI 1754 - ITAT CHENNAI] and hold that the income from running the pharmacy which is integral part of the hospital is eligible for exemption u/s.11 and hence the AO is directed to delete the addition made in this regard. The appeal is allowed in favour of the assessee. - ITA No. 1224/Bang/2015 - - - Dated:- 29-4-2022 - Smt. Beena Pillai , JM And Ms. Padmavathy S , AM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, it is evident that the Tribunal has not recorded any reasons whether or not the assessee has complied with the twin conditions mentioned in subsection 4A of section 11 of the Act. The order passed by the Tribunal is cryptic and suffers from the vice of non-application of mind. Therefore, the finding of the Tribunal insofar as it pertains to the first substantial question of law cannot be sustained. 9. Accordingly, the order of the Tribunal dated 13.07.2016 insofar as it records the finding with regard to the first substantial question of law is hereby quashed. Therefore, it is not necessary to answer the same. The matter is remitted to the Tribunal for recording the finding on the aforesaid substantial question of law bearing in mind the mandate contained in Section 11(4A) of the Act. 4. Facts to be considered for considering the issue remanded by Hon ble High Court are as under:- The assessee runs pharmacy for the purpose of medical college and hospital attached to the medical college. During the course of assessment the AO called for the books of accounts of the pharmacy business to which the assessee submitted that it does not maintain separate books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the A.O. is that no separate books of account were maintained by the assessee. The learned AR submitted that the assessee though not maintaining separate set of books is having a separate trading account for the pharmacy, wherein all the charges and sales are duly accounted for and a separate stock register was also maintained. Once the pharmacy attached to the medical college / hospital is not a business undertaking, the provisions of section 11(4) and 11(4A) of the Act are not applicable. The learned AR drew out attention to page 16 of the paper book and submitted that though separate books are not maintained, separate accounts are maintained in respect of the pharmacy. 8. The learned Departmental Representative, on the other hand, submitted that the activity of the pharmacy is business in nature, hence, supported the decisions of the lower authorities. 9. We heard the rival submissions and perused the material on record. It is worthwhile to look into the provisions of section 11(4A) of the Act, which is reproduced below:- (4A) Sub-section (1) or sub-section (2) or sub-section (3) or subsection (3A) shall not apply in relation to any income of a trust or an inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hospital and dispensary on a daily basis. Patients are admitted as in-patients and they are also treated as out-patients. For all the in-patients undergoing treatment in the hospital, medicines are delivered from the pharmacy run by the assessee-society. In respect of out-patients also, most of the patients purchase medicine from the pharmacy run by the assessee. A few of the out-patients might purchase medicines from outside. Likewise, few from the public living nearby to the hospital may purchase medicines from the pharmacy run by the assessee-society. The purchase of medicines by the public is absolutely negligible. That negligible amount of sales, if any, cannot decide the nature of activities carried on by the assessee in running the pharmacy in its hospital premises. The pharmacy is not situated in any commercial area or outside the hospital compound with the intention to invite the public at large to purchase medicines from the pharmacy run by the assessee-society. The assessee society is running the pharmacy within the premises of the hospital and as part of the hospital itself. It is clear that the pharmacy is run by the assessee-society only for the purpose of running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s case is very much similar and hence the principles laid down in the case of M/s.Franciscan Sisters of St.Joseph Society (supra) is squarely applicable to the assessee. 14. We also notice that the Co-ordinate Bench of the Tribunal in the case of DCIT (Exemption) v. Karnataka Chinmaya Trust in ITA Nos.1667 1668/Bang/2019 (order dated 02.11.2021) has considered the same issue and held as follows:- 23. The case of the Revenue is that the pharmacy shop constitutes an independent business that requires maintenance of the books of account separately in addition to the books of account maintained for the purpose of business of the hospital run by the assessee. When, such separate books of accounts are not maintained for pharmacy, there is a violation of provisions of section 11(4A) of the Act resulting in denial of exemption in respect of profits relatable to the said pharmacy shop. 24. On the contrary, the case of the assessee is that the running of a hospital includes a running of pharmacy as well. Therefore, the pharmacy business is not an independent business activity so far as the assessee is concerned. In fact, the same constitutes an integral part of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Supreme Court has observed, while construing the provisions of Section 10(22) that the decisive or acid test is whether on an overall view of the matter the object is to make a profit. If after meeting the expenditure any surplus results incidentally from the activity lawfully carried on by the institution, it will not cease to be one existing solely for the statutorily stipulated purpose so long as the object is not to make a profit. Again, it is a wel1 settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Even if the figures which are taken into account by the Chief Commissioner are to be had regard to, it is evident 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. The Chief Commissioner has accepted that the surplus which is earned from the operation of a chemist shop is utilized for the purposes of the hospital. A hospital must of necessity have a section or department where medicines can be dispensed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument relating to if the pharmacy is an integral part of the hospital business or not. Considering the above, we are of the opinion, the conditions of maintenance of books of account in respect of the business activity of trading of medicines, which is an integral part of the hospital activities, is not the requirement of the law on the facts of this case. Thus, we affirm the assessee s contention that the 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 section11(4A) of the Act. Accordingly, grounds raised by the Revenue are dismissed. 29. In the result, this ground in both the Revenue s appeals are dismissed. 15. The coordinate bench of the Tribunal also laid out that running the pharmacy is very much an integral part of running the hospital as per the objects of the trust and the conditions of maintenance of b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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