The Ahmedabad Income Tax appellate tribunal (ITAT) allowed 15 percent accumulation on profits and gains from pharmacy business incidental to business of charitable trust.
Assessee Shree Bhartimaiya Memorial Foundation is a registered charitable trust; both under the Income Tax Act and with the Charity Commissioner, providing services to the public at large. During the impugned year it had shown gross receipts of Rs.23,90,62,222/- including receipt of Rs.7,40,55,485/- from its pharmacy business
Finding the pharmacy business to be incidental to the charitable activities of the assessee-trust, the assessing officer held that in terms of the provisions of section 11(1)(a) of the Income Tax Act 1961 it was only profits and gains of the pharmacy business which were to be considered for the purpose of computing the amount to be allowed to set apart, at the rate of 15 percent of the income.
The assessee had computed the same on the gross-receipts of the pharmacy business. But the excess accumulation claimed by the assessee was denied by the assessing officer .Against the order assesee filed an appeal before ITAT.
Hardik Vora, counsel for the assessee relied upon the decision of the ACIT vs. ALN Rao Charitable Trust contented that “accumulation is to be calculated on the gross receipts and not profits and gains of business”.
Leena Lal counsel for the revenue submits that accumulation of incomes of such incidental businesses was to be computed on the profits and gains of the business and the gross receipts accordingly would not qualify for the said purpose.
After considering the contentions of the both parties the division bench of the Annapurna Gupta,, (Accountant Member) and Madhumita Roy, (Judicial Member) dismissed the appeal filed by the assessee and observed that,
“it is the only profits and gains derived from the incidental business of the assessee charitable-trust that is its pharmacy business, which would qualify as income for the purpose of computing the statutorily allowed accumulation at the rate of 15 percent in terms of section 11(1)(a) of the Income Tax Act 1961”.
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