TMI Blog2022 (10) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... paid for committing an offence prohibited under the law, the finding of ld. CIT(A) is confirmed. Whether the said sum is a revenue expenditure is still in doubt and the first appellate authority has also not adjudicated this issue which has been observed by ld. AO in the assessment order for making the alleged disallowance. The alleged sum is admittedly not a penalty in nature but whether it a revenue or capital expenditure still needs to be examined. We, therefore, are of the considered view that this issue that whether the alleged sum i.e. compensation paid by the assessee company on the direction of Hon'ble Supreme Court of India to the relative of a patient who died due to the negligence of the doctors and the hospital authority is in the nature of capital expenditure or revenue expenditure needs to be restored to ld. CIT(A) for necessary adjudication. Needless to mention that the assessee shall be provided fair opportunity of being heard and to file necessary submissions as well as to place reliance on judicial pronouncements if considered necessary so that ld. CIT(A) can decide the issue in accordance with law. We therefore, restore the issue raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as culled out from the records are that the assessee is a limited company and runs a hospital in the name of Amri Hospital and also runs a diagnostic centre. E-return for AY 2014-15 furnished on 30.09.2014 declaring loss of Rs. 63,89,91,819/-. Case selected for scrutiny followed by serving of notices u/s 143(2) 142(1) of the Act. Various details called for by ld. AO were submitted. On going through the same ld. AO observed that the assessee has claimed expenditure of Rs. 10,87,28,000/- on account of compensation paid to Mr. Kunal Saha as per the directions of the Hon'ble Supreme Court of India vide order dated 24.10.2013 for the negligence on the part of the hospital in providing proper treatment of Late Anuradha Saha. This compensation was given to Mr. Kunal Saha, husband of Late Anuradha Saha. The said compensation was claimed as an expenditure by the assessee company. However, ld. AO was of the considered view that the said compensation cannot be allowed as an expenditure on account of two reasons; firstly, the said amount is in nature of the penalty and therefore, disallowable u/s 37(1) of the Act and secondly, the said amount is not of revenue in nature but a capital ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was required to provide additional services and facilities other than just its property given on rent. 8. That in the facts and circumstances of the case and in law, the Ld. CIT(A) is erred by stating that the advances written off by the assessee company on account of property advance is business loss. 9. That in the facts and circumstances of the case and in law, the Ld. C'IT(A) is erred by not appreciating the facts that the aforesaid advance was never a part of receipt or for that matter a profit Loss item. 10. That in the facts and circumstances of the case and in law, the Ld. CIT(A) is erred by not appreciating the facts that the amount of advance was a capital advance arising out of a deal for property and the advance was never a part of or ever declared as receipt in its books of account by the assessee company accordingly, the aforesaid advance of property is not allowable expenses of the assessee. 11. The appellant craves leave to add/alter/modify the grounds of appeal. 5. We will first take up ground nos. 1 to 4 through which Revenue has challenged the finding of ld. CIT(A) deleting the disallowance made by ld. AO u/s 37(1) of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services provided by the government hospitals. In the case of Achutrao Haribhau Khodwa v. State of Maharashtra their Lordships observed that in cases where the doctors act carelessly and in a manner which is not expected of a medical practitioner, then in such a case an action in tort would be maintainable. Their Lordships further observed that if the doctor has taken proper precautions and despite that if the patient does not survive then the court should be very slow in attributing negligence on the part of the doctor. It was held as follows: (SCC p. 635) 'A medical practitioner has various duties towards his patient and he must act with a reasonable degree of skill and knowledge and must exercise a reasonable degree of care. This is the least which a patient expects from a doctor. The skill of medical practitioners differs from doctor to doctor. The very nature of the profession is such that there may be more than one course of treatment which may he advisable for treating a patient. Courts would indeed he slow in attributing negligence on the part of a doctor if he has performed his duties to the best of his ability and with due care and caution. Medical opinion may d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence is produced to satisfy that he died because of lack of proper care and negligence, then the burden lies on the hospital to justify that there was no negligence on the part of the treating doctor or hospital. Therefore, in any case, the hospital is in a better position to disclose what care was taken or what medicine was administered to the patient. It is the duty of the hospital to satisfy that there was no lack of care or diligence. The hospitals are institutions, people expect better and efficient service, if the hospital fails to discharge their duties through their doctors, be inn employed on job basis or employed on contract basis, it is the hospital which has to justify and not impleading a particular doctor will not absolve the hospital of its responsibilities. (Emphasis laid by this Court) 109. Therefore, in the light of the rival legal contentions raised by the parties and the legal principles laid down by this Court in plethora of cases referred to supra, particularly, S a vita Garg s case, we have to infer that the appellant- AMR! Hospital is vicariously liable for its doctors. It is clearly mentioned in Savita Garg's case that a Hospital is responsible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed deduction of compensation and allowing of said deduction will tantamount to letting Assessee go scot free. The Respondent Assessee states and submits that as has been held by the Hon ble Supreme Court it is not liable for being charged with criminal negligence under section 304A of the Income Tax Act. 1961. Now coming to allegation of the department that Negligence of the Respondent Hospital in the treatment of the patient was offence under law of Torts, Indian Contract Act, Consumer Protection Act, in this respect we first and foremost refer to judgment rendered in Malay Kumar Ganguly vs. Dr. Sukumar Mukherjee Ors (2009) 9 SCC 221, wherein while holding that AMRI cannot be charged with Criminal Negligence under section 304A of the Indian Penal Code, the Hon ble Supreme Court had held as under: ....For negligence to amount to an offence the element of mens rea must be shown to exist. It is not the case of the department that Respondent Assessee negligence had an element of mens-rea/Guilty Mind. Even otherwise, the infringements of provisions of law of Torts, Indian Contract Act, Consumer Protection Act can give rise to an action for damages under Civil L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The DMC issued notices to the concerned doctors and after hearing them opined that there was no medical negligence on the part of the doctors (of Max Hospital, Pitampura, New Delhi) in the treatment administered by them to the deceased Nitika Manchanda. Being dissatisfied with the opinion given by the DMC, Shri S.P. Manchanda, the deceased's father made a representation in the form of an Appeal to the Medical Council of India (MCI) which after notice to the concerned doctors and the Petitioner hospital passed the impugned order which has been extracted above. 6. The Petitioner's grievance is twofold. Firstly, that since the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the Regulations) have been framed in exercise of the power conferred under Section 20-A read with Section 33 (m) of the Indian Medical Council Act, 1956, these regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights/interests of any Hospital, therefore the MCI could not have passed and has not passed, any order against the petitioner which can be assailed before this Hon'ble Court in writ jurisdiction. (iv) That a simple observation made by the Ethics Committee of MCI about the state of affairs in the petitioner Hospital has harmed no legal right/interest of the petitioner for which a writ can be issued by this Hon'ble Court against the answering respondent. (v) That the petitioner contends that an adverse order has been passed by the MCI and that too without hearing the petitioner. Both these contentions of the petitioner are incorrect and frivolous as firstly, there is no adverse order made by the MCI against the petitioner as MCI does not have any such jurisdiction; secondly, the petitioner was throughout represented before the Ethics Committee of MCI during the proceedings initiated on complaint of one Mr. Sunil Manchanda against some of the doctors working in the petitioner hospital. The petitioner was heard through its advocates on several occasions and had submitted several documents also in support of their stand. 8. It is clearly admitted by the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity, The top court termed it as a matter of great public importance and concern the manipulation of doctors prescriptions in lieu of freebies offered to them by pharmaceutical companies. The Court noted that freebies range from gifts such as gold coins, fridges, and LCD TVs to funding international trips for vacations or to attend medical conferences. The Court stated and held that pharmaceutical companies gifting freebies to doctors, etc, is clearly prohibited by law , and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes - that they need to be interpreted strictly - cannot sustain when it results in an absurdity contrary to the intentions of Parliament. However, in the facts of the instant case the Respondent Assessee state and submit that negligence attributed to it, as per the Judgment of Hon ble Supreme Court, cannot be stated to be for any offence. Furthermore, the expense incurred by it towards payment of Compensation, as per directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant time of 1998, when the patient unfortunately died due to medical complications and negligence in treatment attributed to Doctors and Respondent Hospital, there was no provision of law/regulation which was regulating/governing Private Hospitals like Respondent Assessee. It is important to note that the National Consumer Disputes Redressal Commission has awarded Compensation and the Hon ble Supreme Court has revised the quantum of said Compensation, as deficiency was found in the services rendered by the Respondent Assessee in the treatment of patient within the meaning of Consumer Protection Act, 1986. The definition of deficiency as per Section 2(g) of the Consumer Protection Act, 1986 is as under: Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service; The definition of the word deficiency was re-casted under Section 2(11) of the Consumer Protection Act, 2019 as under: Deficiency means any f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the normal course of business is baseless. The AO has failed to show as to how the payment of compensation can be said to be penal in nature. Nowhere in the Judgments of the Orders passed by the Hon ble Supreme Court it was stated that the Compensation being awarded therein is penal in nature. On the other hand the Hon ble Supreme Court had held that there was deficiency in the services rendered by AMRI which resulted in Negligence but there was no Gross Negligence for imposing Criminal Liability. It cannot be disputed that there was no offence, Criminal Activity, or any infraction of law as is envisaged under Explanation 1 to Section 37 of the Act. As stated hereinabove, the Hon ble Supreme Court in its Judgment rendered in Malay Kumar Ganguly vs. Dr. Sukumar Mukherjee Ors (2009) 9 SCC 221 had absolved the Respondent Assessee Hospital from Criminal liability and furthermore department had not been able to show that the Compensation paid was for any purpose which is an offence or which is prohibited by law . Reliance in this connection is also placed on the Judgment of Full Bench of Hon ble Punjab Haryana High Court rendered in the case of Jamna Auto Industries vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an offence and not allowable as an expenditure u/s 37(1) of the Act. Finding of ld. CIT(A) is as follows: 4.2 I have gone through the assessment order and written submission filed by the appellant and also the judgment dated 24-10-2013 of the Hon ble Apex Court. It is seen that the compensation has been awarded by the Hon ble Apex Court due to the negligence on the part of the hospital in providing proper treatment to the said Mrs. Anuradha Saha. The Hon ble Apex Court has categorically held that the appellant was negligent and had therefore awarded the compensation. During the course of carrying on its business the appellant is under obligation to provide proper treatment to the patients as per the standard norms prescribed. Since the appellant failed to provide proper treatment and was held as negligent in doing so, it amounts to breach of contract. The learned AR has relied on various judgments. 4.3 I have considered the submissions and find substantial merit and agree with the appellant that the payment of compensation for its negligence to provide proper treatment to the patient amounts to breach of contract and that the payment of compensation made therefore is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure are funds used by a company to acquire, upgrade and maintain physical assets, purchase of fixed assets which are used for revenue generation over a long period. Before us, the issue relates to a compensation paid by a company for negligence on the part of its doctors and other hospital authorities. It is not the case that the said sum is paid for earning revenue during the year or which have any direct nexus with any revenue received during the year. By paying the said sum, the assessee company has certainly been able to clean its image to some extent as it paid the compensation to the affected party and this action may have brought a positive impact on the goodwill which fell down drastically when the Civil case was filed against it. 8.5. So, whether the said sum is a revenue expenditure is still in doubt and the first appellate authority has also not adjudicated this issue which has been observed by ld. AO in the assessment order for making the alleged disallowance. The alleged sum is admittedly not a penalty in nature but whether it a revenue or capital expenditure still needs to be examined. We, therefore, are of the considered view that this issue that whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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