Pharmacies in Hospitals Are Essential for Operations; Qualify for Section 11 Tax Exemption | ITAT

Case Details: Bhatia General Hospital vs. Deputy Commissioner of Income-tax (Exemption) - [2025] 172 taxmann.com 43 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amarjit Singh, Accountant Member & Raj Kumar Chauhan, Judicial Member
• Nitesh Joshi and Viral Shah, Advs. for the Appellant.
• S. Srinivasu, CIT DR for the Respondent.

Facts of the Case

The assessee was a public charitable trust running a hospital for philanthropic purposes. During the assessment proceedings, the Assessing Officer (AO) noted that the assessee was running a pharmacy store in the hospital premises. The assessee was asked to furnish a detailed submission on the alleged surplus of the pharmacy and provisions of section 11(4A).

The assessee submitted that the running of the pharmacy by the assessee was an integral part and interwoven with the activities of running the hospital. The patients undergoing any treatment in the hospital need medicines, including life-saving drugs, without which it is not possible for a hospital to treat its patients.

Hence, the pharmacy is an essential establishment for any hospital. Even the patients who have been operated also require medicines, and if the medicines are not provided, the result would be fatal. Also, providing medicines to patients can never be treated as business income.

However, the Assessing Officer was of the opinion that the net profit realised from the pharmaceutical department required to be treated as business income and accordingly brought to tax. The CIT(A) upheld the order of AO, and the matter reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee ran a hospital with in-house patients. Medicines are essential for the treatment of the patients. Similarly, the assessee also treated the OPD patients, who could purchase medicines from the hospital chemist shop. To save the lives and provide proper treatment of the in-house patients, running the pharmacy division was the most essential requirement for running the assessee hospital and fulfilling the dominant purpose of the assessee trust.

The assessee fulfilled all the requirements that necessitated running the hospital’s pharmacy division to achieve the assessee trust’s dominant purpose. Therefore, the assessee was entitled to the benefit under section 11(1) of the Act, and the income from the pharmacy division of the assessee cannot be treated as business income from a separate and independent activity carried out by the assessee.

List of Cases Reviewed

• Asstt. Director of Income Tax (Exemption)-II(1), Mumbai v. M/s Jaslok Hospital & Research Centre in ITA No.6853/Mum/2014 order dated 15/06/2016 Mumbai in ITA No. 912/Mum/2023 [Para 19 and 20] followed.

List of Cases Referred to

• Pr. CIT (Exemption) v. National Health & Education Society [2023] 154 taxmann.com 636 (Bombay) (para 9)
• Baun Foundation Trust v. Chief CIT [2013] 33 taxmann.com 677 (Bombay) (para 9)
• Franciscan Sisters of St. Joseph Society v. Jt. CIT (Exemptions) [2014] 46 taxmann.com 31/[2015] 152 ITD 485 (Chennai – Trib.) (para 9)
• Hiranandani Foundation v. Asstt. DIT [2016] 70 taxmann.com 321/159 ITD 278 (Mumbai) (para 9)
• Radhasoami Satsang v. CIT [1992] 60 Taxman 248/193 ITR 321 (SC) (para 9).