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2021 (3) TMI 1025 - HC - Income TaxAssessment of trust - Pharmacy income as income of charitable trust - pharmacy income treated as business income by the Assessing Officer as well as the Commissioner as the assessee does not maintain separate books of accounts - HELD THAT - From perusal of the provision of Section 11(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) it is evident that in order to claim benefit of the aforesaid provision the assessee is required to comply with the twin conditions namely any Institution or Trust being profits and gains of business unless such income is incidental to the attainment of the objective of the trust and maintenance of separate books of accounts by such Trust or Institution in respect of such business. From perusal of the order passed by the Tribunal it is evident that the Tribunal has not recorded any reasons whether or not the assessee has complied with the twin conditions mentioned in sub-section 4A of Section 11. The order passed by the Tribunal is cryptic and suffers from the vice of non-application of mind. Therefore the finding of the Tribunal insofar as it pertains to the first substantial question of law cannot be sustained. Accordingly the order of the Tribunal dated 13.07.2016 insofar as it records the finding with regard to the first substantial question of law is hereby quashed. Therefore it is not necessary to answer the same. The matter is remitted to the Tribunal for recording the finding on the aforesaid substantial question of law bearing in mind the mandate contained in Section 11(4A) of the Act. 15% for accumulation on gross receipts instead of net receipts - nature of receipts in the case of assessee - HELD THAT - Assessee submitted that the second substantial question of law is no longer res integra and has already been answered against the revenue in COMMISSIONER OF INCOME-TAX Vs. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION 2017 (12) TMI 1067 - SUPREME COURT and another decision of Supreme Court in COMMISSIONER OF INCOME-TAX Vs. PROGRAMME FOR COMMUNITY ORGANISATION 2000 (11) TMI 4 - SUPREME COURT . The aforesaid submission could not be disputed by the learned counsel for the revenue. Substantial question of law No.2 decided in favour of the assessee.
Issues:
1. Treatment of pharmacy income as business income for a charitable trust. 2. Calculation of accumulation on gross receipts instead of net receipts. Issue 1: Treatment of Pharmacy Income as Business Income for a Charitable Trust The case involved an appeal under Section 260A of the Income Tax Act, 1961, concerning the treatment of pharmacy income as business income for a charitable trust for the Assessment Year 2011-12. The Assessing Officer disallowed depreciation, pharmacy income, and calculated accumulation on gross receipts, resulting in additions to the income. The Commissioner of Income Tax (Appeals) partly allowed the appeal, which led to the filing of an appeal before the Income Tax Appellate Tribunal. The Tribunal partially allowed the appeal, prompting the revenue to file the current appeal. The first substantial question of law revolved around whether the pharmacy income should be considered business income for the trust, as the assessee did not maintain separate books of accounts. The revenue argued that the trust did not meet the conditions specified in Section 11(4A) of the Act, which require profits to be incidental to the trust's objectives and the maintenance of separate accounts. The revenue contended that the Tribunal erred in not considering if the medicine was sold to the public and relied on a decision without proper application of mind. However, the assessee argued that the pharmacy was incidental to the medical college and hospital operations, and the revenue did not challenge a previous decision on the matter. Upon review, the Court found that the Tribunal did not assess whether the trust met the conditions of Section 11(4A) and the order lacked proper reasoning. As a result, the Court quashed the Tribunal's finding on the first substantial question of law and remitted the matter back to the Tribunal for a fresh determination in line with Section 11(4A) requirements. Issue 2: Calculation of Accumulation on Gross Receipts The second substantial question of law pertained to the calculation of accumulation on gross receipts instead of net receipts. The revenue argued for the calculation based on gross receipts, citing a decision by the Chennai Bench. However, the assessee referenced Supreme Court decisions that favored calculating accumulation on net receipts. The Court noted that the issue was settled by previous Supreme Court decisions, which favored calculating accumulation on net receipts. Therefore, the Court answered this question against the revenue and in favor of the assessee, citing established legal precedents. In conclusion, the High Court of Karnataka addressed the issues raised in the appeal concerning the treatment of pharmacy income and the calculation of accumulation for a charitable trust. The judgment provided clarity on the legal requirements under Section 11(4A) and upheld established legal principles regarding the calculation of accumulation on net receipts.
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