Top Stories Pharmacy Income Not Separate Business, Exempt u/s 11: ITAT grants Relief to Charitable Hospital [Read Order] The tribunal noted that medicines are one of the most common healthcare interventions and play a significant role in patients’ health management. Pharmaceuticals are an integral part of patient care By Eeva Mary Sanil – On April 30, 2025 8:03 pm – 2 mins read The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that income earned from a pharmacy and chemist shop operated within a hospital is not a separate business activity, but rather an integral and incidental component of providing medical relief.

The assessee, Bhatia General Hospital, a registered public charitable trust under Section 12a since 1975, had filed its return for the Assessment Year 2014–15, declaring income earned through its hospital operations, including receipts from an in-house pharmacy and chemist shop. The Assessing Officer (AO), however, treated the income of ₹15.08 crore from the pharmacy division and ₹44.49 lakh from the chemist shop as business income, invoking Section 11(4A), which requires that such income is exempt only if it is incidental to the charitable purpose and separate books are maintained. The AO contended that the pharmacy’s turnover was nearly 18% of the total hospital receipts, suggesting that it was a primary, not incidental, activity. Since separate books of account were allegedly not maintained for the pharmacy, the exemption was denied, and the income was taxed.

This view was upheld by the CIT(A), prompting the hospital to appeal before the ITAT. Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements!, Click Here The hospital, in its appeal to the tribunal, argued that the pharmacy was integral to its core objective of providing medical relief. The counsel relied heavily on binding precedents, including Jaslok Hospital & Research Centre, upheld by the Bombay High Court in 2022, where similar facts were under consideration. It was argued that the pharmacy did not operate independently or serve the general public but supplied life-saving drugs to patients undergoing treatment within the hospital, making it an essential, not ancillary, function.

The tribunal carefully examined the factual matrix and judicial precedents. It noted that both the pharmacy and the chemist shop served in-house and outpatient (OPD) patients, and that such facilities are indispensable for the functioning of any hospital. Referring to the decision in PCIT(E) v. National Health & Education Society, the Tribunal observed that running a pharmacy is not merely a commercial venture, but a necessary function of medical treatment. Tribunal noted that medicines are one of the most common healthcare interventions and play a significant role in patients’ health management. Pharmaceuticals are an integral part of patient care. Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements!, Click Here The Tribunal further held that the lack of separate books, although contested, was not critical in this case, as the pharmacy was not an independent commercial arm but an integral part of the hospital’s charitable activities. It emphasised that the surplus was reinvested for philanthropic purposes, and there was no violation of the trust’s charitable registration. The bench comprising of Amarjit Singh (Accountant Member) and Shri Raj Kumar Chauhan (Judicial Member), applied the principle that “what is incidental to the dominant object of a charitable institution cannot be considered a separate business,” and directed the AO to delete the addition made under Section 11(4A). As a result, the appeal was allowed. To Read the full text of the Order CLICK HERE