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August 27, 2022

ITAT allows a charitable hospital’s pharmacy income to be exempted from taxation

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

ITAT allows a charitable hospital’s pharmacy income to be exempted from taxation

Facts and Issue of the Case

The only effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in treating the running of a pharmacy as an activity incidental to the attainment of the objectives of the assessee society which is running a hospital in terms of Section 11(4A) of the Act in the facts and circumstances of the instant case.

Observation by the Court

The court had heard the rival submissions and perused the materials available on record. The court find that the AO had sought to treat the conduct of the assessee in running a pharmacy on commercial basis. The ld. AO on perusal of the financials of the pharmacy and the assessee society on overall basis observed that the surplus earned in pharmacy contributed substantially to the overall surplus earned by the assessee society. The court also observed that the surplus earned in pharmacy contributed substantially to the overall surplus earned by the assessee society. The court also observed that the pharmacy sells medicines to outsiders also. With these observations, the ld. AO concluded that assessee society running a pharmacy is not an activity incidental to the attainment of the objectives of the society and sought to bring to tax the surplus earned by pharmacy alone on commercial basis.

The court find that the ld. CIT(A) had granted relief to the assessee based on orders passed by this Tribunal in assessee’s own case for A.Yrs 2010- 11 to 2013-14, wherein the same issue has been addressed by this Tribunal in favour of the assessee. The ld. DR before us vehemently argued that the Tribunal order is not accepted by the Revenue and the department has preferred further appeal to the Hon’ble Bombay High Court and the same are pending. It is not in dispute that assessee is a charitable trust duly registered u/s.12A of the Act and entitled for exemption u/s.11 of the Act. It is not in dispute that the main objective of the assessee trust is education and medical relief to the public at large, interalia among others. The court find that the issue in dispute is no longer res integra in view of the decision of this Tribunal for A.Yrs 2010-11 and 2011-12 in the case of assessee wherein by placing reliance on the decision of the Hon’ble Supreme Court.

The court find that the Hon’ble Jurisdictional High Court decision referred to supra in the case of Baun Foundation Trust squarely addresses the issue in dispute before us wherein it was held that the activity of Chemist / Pharmacy was held to be incidental or ancillary to the dominant object or purpose for running a hospital. Respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in the instant case.

Conclusion

The appeals of the revenue are dismissed by the court.

Dy.-CIT-Vs-Karuna-Medical-Society-Karuna-Hospital-ITAT-Mumbai

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