income Tax Officer Vs. Ashalok Nursing Home (P) Ltd. - Court Judgment

Excerpt:
1. this is an appeal by the revenue against the order dt. 17th feb., 2003 of cit(a)-xxvii, new delhi, relating to the asst. yr. 1999-2000.2. the assessee is a private limited company. in the order of assessment it is mentioned that the assessee is engaged in the business of running a nursing home. in the course of assessment proceedings the assessee submitted that it does not maintain a daily case register. the ao has referred to the fact that maintaining a 'daily case register' in form 3c is a statutory requirement under section 44aa of the act, r/w rule 6f(3) of the it rules. the ao was of the view that the gross receipt of the assessee cannot be verified in the absence of daily case register in form 3c. the ao has made the following observations in the order of assessment: i am,.....

Judgment:
1. This is an appeal by the Revenue against the order dt. 17th Feb., 2003 of CIT(A)-XXVII, New Delhi, relating to the asst. yr. 1999-2000.

2. The assessee is a private limited company. In the order of assessment it is mentioned that the assessee is engaged in the business of running a nursing home. In the course of assessment proceedings the assessee submitted that it does not maintain a daily case register. The AO has referred to the fact that maintaining a 'daily case register' in Form 3C is a statutory requirement under Section 44AA of the Act, r/w Rule 6F(3) of the IT Rules. The AO was of the view that the gross receipt of the assessee cannot be verified in the absence of daily case register in Form 3C. The AO has made the following observations in the order of assessment: I am, therefore, not satisfied with the correctness and completeness of the accounts of the assessee. I, therefore, make an addition of Rs. 13,30,000 being approximately five per cent of the declared gross receipts of the assessee, thereby estimating the gross receipts at Rs. 2,79,34,223.

3. Against the aforesaid addition the assessee preferred appeal before the CIT(A). The principal argument of the assessee before the CIT(A) was that the assessee being a limited company cannot be said to be carrying on any profession, since for carrying out a profession personal skill is required and a company being an artificial person cannot possess any personal skill. Reliance was placed on the decision in the case of DY CIT v. Insight Diagnostics and Oncological Research Institute (P) Ltd. (2004) 88 TTJ (Pune) 580 : (2002) 82 ITD 230 (Pune) wherein it was held that the word 'business' is of wide import and it refers to real, substantial and systematic or organized course of activity with a set purpose. This definition would normally include profession. However, since legislature has defined the words 'business' and 'profession' separately, the word 'business' would not include the 'professional activity'. The word "profession" implies professed attainment of special knowledge as distinguished from mere skill. It involves labour, skill, education and special knowledge. Despite this distinction, if any, professional activity is carried on tinged with a commercial character, then it may amount to business.

4. The following case laws were also relied upon for the proposition that medical practitioners running nursing home would be a case of a professional man carrying on a business activity.Dr. P. Vadamalayan v. CIT Reliance was placed on the guidance note issued for tax audit under Section 44AB of the Act by the Institute of Chartered Accountants of India wherein they have classified nursing home as a business activity and not as a professional activity. Apart from the above, the assessee also challenged the rejection of books of account by the AO without pointing out any error, discrepancy or irregularities in the books of account maintained by the AO. It was also pointed out that the details of names of the patients, date of treatment, nature of professional services, fees received and date of receipt have been duly maintained by the assessee and no fault whatsoever has been found regarding the same.

5. The CIT(A) deleted the addition made by the AO for the reasons given in para 1.5 of the order which reads as follows: I have carefully gone through the facts of the case. Daily case register in Form. No. 3C as per Rule 6F(3) is to be kept by a person carrying on medical profession. Since the assessee-company is not engaged in profession, to maintain daily case register by the assessee-company as specified in Rule 6F(3) is not applicable.

AO has not pointed out any error, discrepancies in books of account, therefore, addition of Rs. 13,30,000 made to professional receipt by the AO is not justified and without any basis, hence is deleted.

6. Aggrieved by the order of the CIT(A), the Revenue has preferred the present appeal. The grounds of appeal raised by the Revenue read as follows: (i) On the facts and circumstances of the case learned CIT(A) erred in allowing Rs. 13,30,300 added for professional receipts. Learned CIT(A) called for remand report. In the remand report the AO pointed out that the assessee could not produce for the verification daily case register in Form 3C, which is to be statutorily maintained as per provisions of Section 44AA of the IT Act r/w Rule 6F(3) of the IT Rules.

(ii) Secondly, the assessee-company is engaged in the profession of medicine because the occupation carried on by it required intellectual skill, knowledge of medical science, application of mind, etc, The Supreme Court has defined the surgery as profession and the same is also performed at the premises of the assessee.

Moreover, assessee is not an unqualified individual running a nursing home rather it is a company floated by qualified doctors for carrying on the profession of medicine through assessee-company. It cannot be termed as assessee-company carrying on business rather it is very much engaged in the profession of medicine.

7. The submission of the learned Departmental Representative was that the intention of the legislature behind prescribing certain details to be maintained by persons practising medicine was that it will enable the AO to ascertain the gross receipts from profession. According to the learned Departmental Representative the intention of the legislature is, therefore, to cover even private limited companies that are engaged in the profession of medicine. According to him even a private limited company can carry on medical profession.

8. The learned Counsel for the assessee drew our attention to the various decisions relied upon before the CIT(A) and submitted that a company being an artificial person cannot carry on a profession as personal skill is required for carrying on the profession. Company being an artificial person cannot possess any personal skill. According to him even in the case of an individual who carries on profession of medicine and also carries out some incidental activity like providing x-rays etc, can be considered as carrying of business vis-a-vis the activity of carrying out diagnosis through x-rays. He also pointed out that the books of account of the assessee were duly audited and the auditors have given no adverse comments. He relied on the decision of the Hon'ble Patna High Court in the case of Mohd Umer v. CIT for the proposition that without pointing out specific defects and without expressing dissatisfaction about the correctness and completeness of the books of account, the AO cannot reject the books of account and resort to a process of estimation of income. He also filed before us copies of the earlier orders of assessment and orders of assessment for subsequent assessment years passed in the case of assessee where the AO had made no additions whatsoever to the declared results.

9. In reply the learned Departmental Representative submitted that the definition of 'person' under Section 2(31) of the Act also includes a private limited company and, therefore, the provisions of Rule 6(F) would apply to the case of an assessee, which is a private limited company. He also submitted that estimation of income is a method of assessment accepted in tax laws and the AO is the best Judge in the matter of estimation of income.

10. We have considered the rival submissions. Rule 6(F) r/w Section 44AA(1) of the Act casts an obligation on a person carrying a medical profession to keep and maintain such books of account and other documents which will enable the AO to compute his total income.

Sub-section (3) of Section 44AA empowers the Board to prescribe the list of documents to be maintained as per the rules framed in this behalf. Rule 6F(3) mandates for maintenance of daily case register. The assessee in the present case is a private limited company incorporated under the Companies Act. Primary question that arises for our consideration is as to whether a company could carry on a profession.

For a person to be engaged in a profession personal skill is necessary.

A company being an artificial person cannot be said to possess any personal skills. A company being an artificial person does not have a mind or a body and, therefore, cannot be engaged in any profession. It can neither have an intellectual skill or any manual skill. We are also of the view that even taking a broader and a more comprehensive meaning of the term profession one cannot extend the same to the case of an incorporated company as being capable of carrying of a profession. The skill involved in carrying out professional activity is predominantly mental or intellectual rather than physical or manual. We are, therefore, of the view that the requirement of Rule 6F(3) cannot apply to a person which is an incorporated company.

11. Apart from the above, we also find the AO has not given any basis whatsoever for rejecting the books of account of the assessee. There is no specific finding or reasons for rejecting the books of the assessee.

The books of account of the assessee are duly audited and it was incumbent on the part of the AO before rejecting the books of account to point out specific defects therein. We are, therefore, of the view that the CIT(A) was fully justified in deleting this addition made by the AO. We, therefore, confirm the order of the CIT(A) and dismiss this appeal by the Revenue.