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April 15, 2022

Whether Advance received from Overseas Patients is Capital or Revenue Receipts?

by CA Shivam Jaiswal in Income Tax

Whether Advance received from Overseas Patients is Capital or Revenue Receipts?

Facts and Issue of the case

Present appeal has been filed by revenue against the order dated 28.12.2018 passed by the Ld.CIT(A)-2, Bangalore for Assessment Year 2014-15 .

During the year under consideration,  the  assessee  in  the balance sheet filed along with the return of income under the head “Sundry Creditors” had shown  an  amount  of  Rs.1,64,63,000/-. During the asst. proceedings the assessing officer had sought for supporting documents/ bills/ receipts/ invoices in support of  the claim made. The assessee vide  her  reply  dated  16.12.2016  stated that the advances were received from overseas customers who are being introduced by various agents, the  management  is  in  the process of obtaining the confirmation  and  other  details  and  the same will be submitted in the subsequent hearing time.

The Ld.AO observed that the  assessee  failed  to  furnish  details  as was stated by her, in the absence of the same, the Ld.AO was constrained to make the addition of entire amount of  Rs. 1,64,63,000/-.

During  the  course  of  appellate  proceedings  the   assessee   stated before the Ld.CIT(A)  that  with  the  development  of  medical  tourism in India a very large number of patients and their  relatives  take advantage of the advance medical facilities available in Indian hospital and with  doctors  practicing  in  India.  Many  patients  come India  on  their  own  and  many  come  through  a  large  number  of agents, who puts them  in  touch  with  the  hospitals,  doctors  etc., arrange  their  arrangements  such  as  visas,  accommodation  in  India and  appointments  with  the   Doctors.   The   patients   who   come through these agents are  often  completely  unknown  to  the  Doctors who often do not know  the  where  about  of  them.  When they  came they pay the requisite fee for treatment which may last  for  entire duration of their treatment. The  entire  treatment  is  collected  in advance  and  usually  in  the  form  of  cash.  That  is  why  there  is  an item called advance received  from  patients  in  the  balance  sheet.  As and when the treatment is complete the advance will be treated as income/ revenue receipt, by transfer from the balance sheet  to  the Profit & Loss  account.  The assessee also  furnished  the  particulars of the advance received for treatment.

Ld.CIT(A) vide letter dated 24.11.2017 called on assessee to establish whether the corresponding income was  ‘recognized  as Revenue  in  the   subsequent  years  and  the  expenditure   is  then  set off. The assessee vile her letter dated Nil submitted in this office on 27.11.2017 stated that direct cost is bare minimum. Most of  the expenses  are  indirect  in  nature  i.e.  most  of   the  expenses  are   fixed in nature. The expense  does  not  vary  with  the  variance  in  the revenue.  Therefore,  the  observation  that  capitalizing   the   cost relevant to advances received may not be material in nature.

The contention of the assessee  was  not  accepted  for  the  reason that on verification of the case sheet furnished by the assessee the Ld.CIT(A) observed that there  is  no  proper  and  complete  address  of the patients other than the name of the patient and the name of the country. The Ld.CIT(A) observed that inspite of affording sufficient opportunity of hearing during the asst. proceedings she failed to furnish the requisite details which is not clear. The assessee also did not  furnish  any  bank  entries  relating  to  each  of  the  receipts.  In the absence of the complete arid substantive material evidence in support of the claim made, the addition made by the Ld.AO  was upheld.

Aggrieved  by  the  order  of  the  Ld.CIT(A),  assessee   is   in   appeal before this Tribunal.

Observation of the case

The crux of  the  issue  is  that  the  amount  received  as  advance from  overseas  patients  is  wrongly   treated   as   revenue   by   the Officer.  Such  advances   include   sum   of   amounts   wrongly  classified as gifts. The A.O. proceeded his enquiry in this direction and the assessee failed to satisfactorily explain the compliance.

The advance received from patients cannot remain perpetually so and even after passage of 46 months, it has not been recognized as revenue. Hence the claim of the assessee that the receipts are capital in nature may not be entertained.

Revenue before this court is alleging the genuineness of transaction pertaining to the advances received from patients to the extent of Rs. 1,64,63,000/-. The Ld.CIT(A) called for remand report during the first appellate proceedings as according to which the assessing officer made categorical observation that  the  advances  received  from  patients cannot remain perpetually so even after passage of  46  months.  The Ld.AO observed that assessee had not recognised the same as revenue and hence it was to be held as capital receipt in the hands of assessee. From the assessment order, it is verifiable that assessee had not filed confirmation from the patients from whom  such  advances  were received. It is also noted  that  Ld.CIT(A)  has  not  verified  the genuineness of the transaction based on any evidences that was filed except for the reasoning that assessee has shown  the  advance  received of Rs. 1.64 Crores to be revenue in subsequent Assessment Year.

Court notes that the Ld.CIT(A) has  deleted  the  addition  based  on certain confirmation letters which has not been elaborated upon in the appellate order.  We, therefore, direct the Ld.CIT(A) to once again carry out a detailed verification in respect of the various evidences that were filed.


This court sets aside the issue back to  Ld.CIT(A)  for verification in accordance with law. In the result, the appeal filed by revenue stands allowed for statistical purposes.


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