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2023 (2) TMI 525 - AT - Income TaxExemption u/s 11 - enhancing the addition - accumulation of charitable income as per section 11(1)(a) on the income from the pharmacy business of the assessee trust - interpretation of the term income from property held for charitable purposes in the relation to businesses qualifying as such properties - whether to be calculated on its gross receipts or on the net profits gains of the business? - CIT (Appeals) calculating deduction u/s 11(1) of the Act based on net income of pharmacy store instead of gross receipts - HELD THAT - Income from properties held for charitable purposes are exempt from tax to the extent utilized for the said purposes. Also 15% of such income is allowed to be set apart or accumulated for the said purpose and treated as deemed application/utilization for charitable purposes. We uphold order of the ld.CIT(A) holding that it is the only profits and gains derived from the incidental business of the assessee charitable-trust i.e. its pharmacy business, which would qualify as income for the purpose of computing the statutorily allowed accumulation at the rate of 15% in terms of section 11(1)(a) of the Act. Decided against assessee.
Issues Involved:
Interpretation of section 11(1)(a) of the Income Tax Act, 1961 regarding the calculation of accumulation of charitable income from a pharmacy business - Whether to be based on gross receipts or net profits & gains. Detailed Analysis: 1. Issue of Interpretation of Section 11(1)(a): The primary issue in the present appeal was the interpretation of section 11(1)(a) of the Income Tax Act, 1961, concerning the calculation of the amount allowed to be set apart for charitable purposes from the income of a pharmacy business. The dispute revolved around whether this calculation should be based on the gross receipts or the net profits and gains of the business. 2. Background and AO's Decision: The appellant, a registered charitable trust, had shown gross receipts of Rs. 23,90,62,222 during the relevant year, including income from its pharmacy business. The Assessing Officer (AO) held that only the profits and gains of the pharmacy business should be considered for calculating the amount to be set apart under section 11(1)(a) of the Act. Consequently, the excess accumulation claimed by the assessee was denied. 3. Decision of CIT(A): The Commissioner of Income-Tax (Appeals) upheld the AO's decision, stating that accumulation should be based on the net profits of the business, not the gross receipts. The CIT(A) referenced relevant provisions of the Act and held that accumulation of incomes of incidental businesses should be computed based on profits and gains, as per section 11(4A). 4. Appellant's Arguments and Case Laws: The appellant heavily relied on the Supreme Court's decisions in various cases to support their contention that accumulation should be calculated on gross receipts, not profits and gains. They cited case laws such as Programme for Community Organization and ACIT Vs. ALN Rao Charitable Trust. 5. ITAT's Decision and Legal Analysis: The ITAT Ahmedabad, after considering the arguments and relevant legal provisions, upheld the decision of the CIT(A). The tribunal clarified that the term "income from property held for charitable purposes" in section 11(1)(a) refers to profits and gains of businesses incidental to charitable objectives. The ITAT distinguished previous case laws cited by the appellant, emphasizing that those cases dealt with different issues and contexts. 6. Conclusion and Dismissal of Appeal: In conclusion, the ITAT dismissed all grounds of the assessee and upheld the decision of the CIT(A) that accumulation for charitable purposes from the pharmacy business should be based on profits and gains, not gross receipts. The appeal of the assessee was consequently dismissed by the tribunal. This detailed analysis provides a comprehensive overview of the judgment, focusing on the key issue of interpretation of section 11(1)(a) of the Income Tax Act and the tribunal's decision regarding the calculation of accumulation of charitable income from a pharmacy business.
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