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TMI Blog2016 (7) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the statement recorded under Section 133A and further by giving a reason that the assessee has used the advance fees received for revenue as well as capital expenditure is not justified and accordingly we set aside the orders of authorities below qua this issue and remit the same to the record of the Assessing Officer to re examine the issue from the record produced by the assessee and then decide the same as per law. Addition on account of “retention money” - Held that:- When the retention money is retained by the assessee for refund in future on completion of project then it is only a liability in the hand of the assessee and therefore the same cannot be treated as income. However at the same time the assessee cannot be allowed to take the benefit of the said amount being used for expenses and investment being application of income. Therefore if the assessee is having sufficient fund to cover this amount then the claim of the assessee under Section 11(1)(a) on account of application of income would not be effected otherwise to the extent of the amount used from the retention money the claim would be reduced. Accordingly, we direct the Assessing Officer to verify all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e we are of the considered opinion that this issue require a proper verification on production of the relevant evidence and details by the assessee. Accordingly, this issue is set aside to the record of the Assessing Officer for proper verification and examination of the record to be produced by the assessee and then decide the same as per law. Appeal of the assessee partly allowed. - I.T. A. No.1224/Bang/2015 - - - Dated:- 13-7-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri M. Karunakaran, Advocate. For The Respondent : Shri Pramod Kumar Singh, CIT-II (D.R) ORDER Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.24.6.2015 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2011-12. 2. There is a delay of 17 days in filing the present appeal by the assessee. The assessee has filed the petition for condonation of delay supported by an Affidavit of its Trustee Sri A.C. Shanmugam. 3. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the Affidavit filed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions towards advance fee, income from pharmacy and also denied the deduction towards accumulation of income allowed @ 15% on gross receipts. Apart from this, the Assessing Officer also denied the setting off of excess application of income for the Assessment Year 2010-11 against the income for the Assessment Year under consideration as well as the deduction of liability for capital expenditure. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) but could not succeed. The assessee has filed the present appeal and raised the following grounds : 1. The Commissioner of Income-tax (Appeals) erred in not allowing the claim of depreciation of Rs. 10,73,00,1241- to the appellants on the ground that the same amounted to double deduction. 2. The Commissioner of Income-tax (Appeals) erred in relying on the amendment made by Finance Act, 2014 as it was effective only from 1/4/2015 and the same is amendatory and prospective in nature as held by the Madras High Court in the case of V.R.Karpagam (54F) and in the case of CIT vs. Coromandel Industries Ltd. (TCA No.443 of 2014 dated 16/12/14 uls 54EC) and therefore would not apply to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellants submit that even if the amount has been earmarked and allocated for the purpose of the institution, it will be deemed to have been applied for its purposes as laid down by the Allahabad High Court in the case of CIT Vs. Radhaswami Satsang Sabha (25 ITR 472). 14. The lower authorities ought to have seer, rhat the appellants had offered the income on mercantile basis and part of the receipts are not at all received by the appellants-trust during the year and therefore the assessing officer should have allowed deduction on such income which was not received during the year while computing the quantum of application of income when he has not allowed the expenses on due basis. 15. The appellants therefore pray that the Hon'ble Income-tax Appellate Tribunal may be pleased to a) To allow depreciation of Rs. 10,73,00,124/- b) To delete the addition of ₹ 1,27,67,530/- being the advance fee received treated as income of the appellants-trust; c) To delete the addition made towards retention money of Rs. 1,10,25,8001- d) Not to treat the pharmacy income as business income of the trust; e) To allow accumulation of income at 15% on the gross rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... series of decisions. In the case of M/s. CMR Janardhana Trust (supra), the Tribunal has again considered and decided this issue in paras 15 to 17 as under : 15. We have heard the submissions of the ld. DR, who relied on the order of CIT(A) and the decision of the Hon ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (2014) 43 taxmann.com 300 (Delhi). We have considered the order of the CIT(A). Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:- 20. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed. 16. It is no doubt true that the Hon ble Delhi High Court in the case of Charanjiv Charitable Trust (supra) has taken a contrary view but then when two views are possible on an issue, the view favourable to the Assessee has to be followed. The decision of the Hon ble Punjab Haryana High Court is in favour of the Assessee and has followed the decision of the Hon ble Karnataka High Court in the case of Society of Sisters of Anne (supra). The interpretation to the contrary given by the CIT(A) on the decision of the Hon ble Karnataka High Court in the case of Society of Sisters of Anne (supra) cannot therefore be accepted. We may also ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the actual amount during the year was only ₹ 1,27,67,530 out of the total sum shown in the Balance Sheet of ₹ 2,24,27,130 and the balance represents the opening balance which cannot be considered as income of the assessee. He has submitted that this fact was pointed out to the authorities below but they have completely ignored the same. The Assessing Officer has given more stress to the fact that the assessee has used the advances for its capital and revenue expenditure and therefore it was treated as income. He has further submitted that the CIT (Appeals) has observed that the assessee has not deposited the advance fees in a separate account however there is no requirement for deposit advance fees in a separate bank account. He has further contended that the assessee produced sufficient evidence in support of the fact that the amount was only advance fees with full details from the persons whom the advance was received and the ledger copy of advance fees were also produced to establish the transfer of the part of such advance as income of the year. Thus the learned Authorised Representative has referred to page 11 of the paper book and submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that the addition made by the Assessing Officer based on the statement recorded under Section 133A and further by giving a reason that the assessee has used the advance fees received for revenue as well as capital expenditure is not justified and accordingly we set aside the orders of authorities below qua this issue and remit the same to the record of the Assessing Officer to re examine the issue from the record produced by the assessee and then decide the same as per law. 15. Ground Nos. 4 to 6 is regarding the addition on account of retention money . 15.1 The Assessing Officer noted that at the time of passing the contract bill, the assessee retained certain portion of the bill amount captioned as Retention Money and such amount would be paid to the contractor after completion of the project under construction. Till then the said amount would be reflected in the Balance Sheet as liability. The Assessing Officer made addition of the said amount on the ground that the amount was mixed with the other funds of the assessee and used for the purpose of meeting both revenue and capital expenditure. It was noted that the retention money was used for the purpose of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cover this amount then the claim of the assessee under Section 11(1)(a) on account of application of income would not be effected otherwise to the extent of the amount used from the retention money the claim would be reduced. Accordingly, we direct the Assessing Officer to verify all the relevant facts on this issue and then decide the same only on question of allowing the deduction of application of income and not treating the retention money as income. 16.1 Ground Nos.7 8 are regarding addition of ₹ 50,66,973 as income from pharmacy. The assessee runs pharmacy for the purpose of medical college and hospital attached to the medical college. The assessee does not maintain separate books of accounts for pharmacy and the transactions pertaining to it are recorded in the books of accounts maintained in the name of college and hospital. The Assessing Officer accordingly treated the said income as business income of the assessee from pharmacy. The assessee challenged the action of the Assessing Officer is before the CIT (Appeals) and contended that since the assessee is also running the pharmacy in the hospital premises itself, it cannot be treated as business activity bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly treated the same as business income of the assessee. 16.4 We have considered the rival submissions and the relevant material on record. The CIT (Appeals) has rejected the claim of the assessee on the ground that the assessee has not furnished the details regarding the sales made to the indoor and outdoor patients of the hospital of the assessee as well as outside public. In such a case, the entire amount cannot be treated as the income earned by the assessee from the sale of medicines to the outside public when the pharmacy is within the premises of the hospital and attached to the hospital. It is pertinent to note that a dispensary/pharmacy is inevitable and indispensable facility for the hospital. The necessity of the pharmacy cannot be ruled out as there are regular emergency situation requiring immediate medicines and other supply of pharmacy for emergency treatment as well as operation/surgery purposes. The Chennai Benches of the Tribunal in case of Franciscan Sisters of St. Joseph Society (supra) has held in paras 7 to 15 as under : 7. In the light of above observation, the Assessing Officer treated the above receipts accounted by the assessee as relating to busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The first item so considered by the assessing authority is the receipts from pharmacy section. It is to be seen that assessee is running a full-fledged general hospital at St. Thomas Mount. The assessing authority has, no doubt, accepted the charitable nature of activities carried on by the assessee-society in respect of that hospital. The assessee is also running a dispensary. Number of patients are visiting the hospital and dispensary on a daily basis. Patients are admitted as in-patients and they are also treated as out-patients. For all the inpatients undergoing treatment in the hospital, medicines are delivered from the pharmacy run by the assessee-society. In respect of out-patients also, most of the patients purchase medicine from the pharmacy run by the assessee. A few of the out-patients might purchase medicines from outside. Likewise, few from the public living nearby to the hospital may purchase medicines from the pharmacy run by the assessee-society. The purchase of medicines by the public is absolutely negligible. That negligible amount of sales, if any, cannot decide the nature of activities carried on by the assessee in running the pharmacy in its hospital premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Once the pharmacy collection is treated as part of its charitable activities, the total of the remaining items work out to less than ₹ 10 lakhs. The law has provided as on date an exclusion of ₹ 10 lakhs from the rigours of denying exemption under Section 11, in respect of activities involving carrying on business or similar activities. The total of collection from typewriting institute, working women s hostel and cr che work out to less than ₹ 10 lakhs and therefore, by virtue of the exclusion clause, those amounts also cannot be considered for disallowing exemption under Section 11. In view of the above discussion as well as the decision of the Chennai Benches of the Tribunal (supra), we decide this issue in favour of the assessee. 17.1 Ground Nos.9 10 are regarding allowing the 15% accumulation on net income of the assessee instead of gross receipts as claimed by the assessee. 17.2 We have heard the ld. A.R. as well as the ld. D.R. and considered the relevant material on record. The ld. A.R. of the assessee has submitted that this issue is covered by the decision of the Tribunal in the case of Capuchin Friar Services of Society Vs. DCIT Dt.9.10.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- 9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of sec. 11(l)(a), have held as under: Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on commercial basis and not total income as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is ₹ 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon'ble Madhya Pradesh High Court in Parsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se parties to whom advances have been given by the assessee. Further the purpose of advances and nature of transaction was also not supported by the evidence. Accordingly, they doubted the genuineness of the claim. 19.2 Before us, the learned Authorised Representative has submitted that even if the amount has been ear marked and allocated for the purpose of Institution, it will be deemed to have been applied for its purpose as held by the Hon'ble Allahabad High Court in the case of CIT Vs. Radhaswami Satsung 25 ITR 472. He has further contended that the actual payment is irrelevant for the purpose of finding out whether there has been an application of fund and if the liability for expenditure has been incurred it would be sufficient as held by the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Trustees of HEH The Nizam s Charitable Trust 131 ITR 497. The learned Authorised Representative has further contended that the assessee has offered the income on mercantile basis and part of receipts are not still received by the assessee trust during the year then the deduction aginst such income which was not received during the year should have been allowed in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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