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2016 (8) TMI 762 - ITAT MUMBAI

2016 (8) TMI 762 - ITAT MUMBAI - TMI - Determination of valuation of the property to DVExchange of plots between the appellant and Vatsalabai Dattatray Charitable Trust without any monetary consideration as transfer of capital asset - tax on the capital gain as per stamp duty valuation - Held that:- The plot of land was vacant and the assessee wanted to exchange the same to commercially exploit the same which is admitted by the assessee and is also borne out from the assessment order passed by t .....

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correct valuation of the property as the valuation adopted by the stamp duty valuation authority for stamp duty valuation authority is excessive for the reasons stated above and also that the assessee had exchanged property of value of ₹ 1,30,89,000/- with the property valued at ₹ 94,51,000/- and hence it exceeds the fair market value of the property on the date of transfer. In our considered view, this plea of the assessee augers well on merits and deserves to be allowed and we are .....

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r accordingly. - Finally, we may reiterate that the AO shall de-novo adjudicate the issue on merits after duly considering our decisions in the preceding para’s as well report of DVO, valuation of the property as determined by stamp duty valuation authorities for stamp duty purposes, relevant evidences adduced by the assessee in its defense and all other material on record in accordance with law. - I. T. A. No. 2360/ Mum/ 2013 - Dated:- 17-8-2016 - Shri Saktijit Dey, Judicial Member And Shri .....

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28th December, 2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) reads as under:- 1) On the basis of circumstances and facts the learned Assessing Officer had erred in holding the exchange of plots between the appellant and Vatsalabai Dattatray Cha .....

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e filed by the assessee with the Revenue was not accompanied with any Profit and Loss Account , or Balance Sheet. Details were called by the AO from the assessee whereby the assessee submitted that the assessee had acquired a piece of land as stock- in-trade in the year 2000 for an amount of ₹ 4,50,000/-. The said plot was exchanged with the plot owned by a Trust namely Vatsalabhai Dattatray Charitable Trust on 3rd June, 2008 and there was no monetary consideration moved from either side, .....

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t of land . The Vatsalabhai Dattatray Sawant Charitable Trust owns another plot Bearing No.27 , Bhatwadi , Village Kirol, Ghatkopar now in Taluka Kurla, Mumbai( Survey No. 26, Hissa No.6(Part) and City Survey No. 27 and 27/1 to 20/20) admeasuring 500 square yards equivalent to 416.7 square meters. The AO observed that Vatsalabhai Dattatray Sawant Charitable Trust exchanged plot No. 27 whose Market value is ₹ 94,5l,000/- with the assessee , and in exchange the assessee had given plot No. 68 .....

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tion 2(47) of the Act. Further as per AO the said plot of land owned by the assessee is a capital asset within the meaning of section 2(14) of the Act, hence gains arising on transfer/exchange of the plot owned by the assessee will give rise to capital gains which are chargeable to tax u/s 45(1) of the Act. The assessee in reply to SCN issued by the AO, submitted that the plot was never acquired by the assessee as capital asset but it was considered as stock-in-trade by the assessee. It was subm .....

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ses for various social and moral reasons, hence, the intention of the assessee was very clear that that they do not want to hold the same piece of land as investment and to earn capital gain thereon. It was also submitted by the assessee that the market value as per section 50C of theAct considered at ₹ 1,30,89,000/- consists of the land of 136 Square meters and the structure of 387.55 square meters Hence the market value of the land of 136 square meters @ ₹ 22,680/- comes to ₹ .....

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which was received in exchange was with many problems such as encroachment of 20 hutments, no approach road etc. for which the cost needs to be incurred to remove the defects. The stamp duty valuation does not necessarily considered all these aspects, hence, the stamp duty valuation might not be good in law. The assessee submitted that it had not received any monetary consideration, hence, there is no income earned as per the Act. The assessee also submitted that the entire arrangement was accep .....

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iece of land for carrying out the business activity and not as an investment The assessee has merely made the statement that the assessee has acquired the land as stock-in-trade which is not enough as the assessee is not trader of land. No evidence is given by the assessee that assessee is a trader of land. Thus, the contention of the assessee is not correct and the AO observed that the said land had never been shown by the assessee as stock-in-trade. The AO observed that the land on which schoo .....

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f a capital asset gave rise to capital gain chargeable to tax u/s 45 of the Act and the capital gain has to be computed as per provisions of Section 48 to 55 of the Act. It was observed by the A.O. that in exchange for transfer of property bearing No. 68, the assessee had received property bearing No. 27 which has market value of ₹ 94,51,000/- . But as per provisions of Section 50C of the Act the market value of the property transferred should be taken as the sale value consideration . The .....

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ilding was not known. The entire property has been transferred to Vatsalabai Dattatray Charitable Trust. It was observed that even if it is assumed that only land is valued at ₹ 30,84,480/- by the assessee, is transferred then in exchange the assessee has got property worth ₹ 94,51,000/-, which is highly improbable. Further, the contention of the assessee that the land received in exchange has encroachments is not supported by any evidence. Hence, the A.O. treated the sale value cons .....

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uilder and is developing the property for which a gift deed is registered . The AO passed the assessment order dated 28.12.2011 u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 28.12.2011 passed by the AO u/s 143(3) of the Act, the assessee filed its first appeal before the learned CIT(A). 5. Before the learned CIT(A), the assessee submitted the following written submissions :- FACTS The assessee is Hindu Undivided Family (HUF) where Mr. Dattatray Namdeo Sawant is a Karta of HUF .....

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he land was registered in the same year. The said plot was in the possession of the assessee. • Janakalyan Seva Santha was a registered Trust carrying out charitable activity. The trust had purchased a piece of land measuring 416.70 Sq. Mtr. in the year 1992.The said trust was subsequently merged with Vatsalabai Dattatray Charitable Trust in 2004. The trust is carrying activity of running a school. The land purchased by the trust was encroached by some of the hutments. The piece of land was .....

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tructure was erected and the school was running from the same place. (The reference to the structure is made on page No 2 of the agreement.) Initially the structure was for ground plus one upper floor which was subsequently improvised by the trust as the place was insufficient to accommodate the students of the school. Thus there was a school building on the plot of HUF. • Thus the trust was owning a plot which it could not develop for school activities due to encroachment and other problem .....

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(please refer page no.4 of the agreement where it was specifically mentioned that the plot was acquired for the development purpose.) it was a stock in trade. As there was no monetary consideration, there was no business profit which could have offered for taxation. • The fact that the HUF had not acquired the plot as an investment. Hence there was no capital gain. Hence Section 50C of the Income Tax Act is not applicable. • The assessing officer erred in applying section 5OC for the a .....

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tock in trade by the assessee and not as an investment. Hence section 5OC would not be applicable. The following points given below support this point of view: (A) Purchase agreement for land states for development purpose The Agreement was registered by the HUF in the year 2006 .The Paragraph 4 of Page 4 of the purchase agreement clearly states that this additional piece of land was purchased for the purpose of developing the plot. A copy of the agreement has been submitted for your reference. .....

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the plot Karta, Mr. Dattatray Sawant was in the same business. Hence the family background also supports the fact that the plot was purchased with the intention to develop the same for the purpose of business. (C) HUF not carrying education or charitable activity The HUF was not involved in education or any charitable activities. The land was purchased by the HUF only for development purpose and not with the intention of carrying out the school. Valuation of Property As mentioned in the Assessm .....

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,30,89,000 as detailed below- 1. Land 136 Sqr. Mtr. And 2. Structure 387.55 Sqr. Mtr Thus you will find that the area of the land is only 136 Sq Mtr which was owned by the HUF. Considering the rate ₹ 22680 per sq. Mtr. stated above the valuation works out to be ₹ 30,84,480/. Therefore without prejudice to the fact that the land was a business asset of HUF, in case the capital gain is to be worked out, it should be on the value of the land taking into consideration the value as ₹ .....

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nkalyan Seva Sanstha subsequently got merged with Vatsalabhai Dattatray Sawant Charitable Trust wherein the assessee was one of the trustee along with 18 other individuals and application was made u/s.36(1)(a) of Bombay Public Trusts Act, 1950 vide application No. 60 of 2009 by Bai Zaverhai Purushottam Nathu Charitable Trust asking for sanction order to sell immovable property i.e. Survey No.24, Hissa No 4&6, admeasuring 136 sq.mtr and right of using F.S.I of 54 square meters for considerati .....

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nt Charity Commissioner permitting to alienate the land which was property of the trust in said application i.e. Bai Zaverbai Purshottam Nathu Charitable Trust alongwith subsequent sale deed dated 27.03.2006. It was observed by the learned CIT(A) from old purchase deed dated 26.04.1993 of land that the assessee along with other 18 individuals , in the capacity of trustees of Janakalyan Seva Sanstha(Regd.) Public Trust ; purchased land bearing Survey no. 26 , Hissa no. 6 , City Survey no. 27(part .....

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d structure to be used by a primary school known as Dnyan Prakash Vidyalaya run by the Trust Janakalyan Seva Sanstha, a public charitable trust where the assessee is one of the Trustee . In order to alienate , the property offer was invited by Bai Zaverbai Purshottam Nathu Charitable Trust , whereby only offer received was from the said school run by Janakalyan Seva Sanstha Charitable Trust . The order of Charity Commissioner states that the offer given by Janakalyan Seva Sanstha Charitable Trus .....

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a Charitable Trust. The assessee has sold the plot with school building constructed by it only in this plot no 68 to Vatsalabai Dattaray Chatitable Trust. The ld. CIT(A) observed that the said exchange is a transfer of land within the meaning of section 2(47) of the Act and gains arising on exchange of land is chargeable to tax u/s 45 of the Act. The ld. CIT(A) also rejected the contention of the assessee that the assessee purchased the land for the benefit of consumption of said land earmarked .....

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f property and also permission to sell for the consideration amount based on registered valuer's report for the said property. The said Mr Dattaray Namdev Sawant had without permission and / or authority of the vendor i.e. Bai Zaverbai Purushottam Charitable Trust had constructed a structure consisting of ground and one upper floor on the said land , which said Mr Dattaray Namdev Sawant since the year 1990 permitted the said structure constructed by him on the original plot to be used by Pri .....

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y Namdev Sawant and his son Mr Rajendra Dattatray Sawant on 31-07-1996 with inter-alia power and authorities to execute a deed of conveyance in respect of original plot of 83.61 square meters in favour of the assessee being purchaser for total value of ₹ 1,00,000/-, while further for ₹ 3,50,000/- said Bai Zaverbai Purushottam Charitable Trust further agreed to sell additional 52.39 square meters along with benefit of consumption of FSI of 54 square meters for use and benefit of schoo .....

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axation of surplus amount, it was observed by the learned CIT(A) that the assessee has not given the basis of his working , when the stamp duty valuation of ₹ 1,30,89,000/- was not objected by the assessee on which stamp duty was paid and the whole property consisting of land and structure was sold as an asset of the assessee only and the learned CIT(A) rejected the contentions of the assessee to bifurcate the same in two components i.e. land and building. Hence, the A.O. s stand was uphel .....

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allowed w.e.f. 2004 i.e. from assessment year 2005-06 and not from the year 2001 as held by the AO , as the vendors did not had right to sell the land prior to approval of the Charity Commissioner in the year 2004 and this plea of the assessee was accepted by the learned CIT(A) . Thus, in nut-shell the learned CIT(A) held that the exchange of property by the assessee was transfer liable to capital gains tax u/s 45 of the Act as the said asset was capital asset held by the assessee as defined u/s .....

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ssessee filed second appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted that there is a transaction of exchange of property between the assessee and the Vatsalabhai Dattatray Charitable Trust in June, 2008 vide deed of exchange executed on 03-06- 2008 and the issue is to deal with whether the exchange of these properties has to be treated as transfer for the purpose of computing capital gains chargeable to tax u/s 45 of the Act read with Section2(14) and Section 2(47) of t .....

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20 hutments. The said trust was subsequently merged with Vatsalabai Dattatray Charitable Trust in the year 2004. It is submitted that it is family trust whereby co- parceners being family members are trustee. The trust is carrying on activity of running a school on the plot of land owned by the assessee which was acquired by the assessee from Bai Zaverbai Purushottam Charitable Trust as set out above in preceding para s. There is a family arrangement in June 2008 to exchange the plot owned by t .....

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Commissioner was obtained to exchange the plots. The assessee has allowed the Trust to run school on the said property owned by the assessee which is now transferred to the Vatsalabai Dattatray Charitable Trust under exchange without any monetary consideration. The plot owned by the Trust which is now taken by the assessee under exchange was encroached by some 20 hutments. This is a family arrangement and the family members are coparceners of HUF. He submitted that the on 3rd June, 2008 the valu .....

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earned from letting of this property as school was running on this property by the Vatsalabai Dattatray Charitable Trust. It is submitted that section 2(47) is not applicable as it did not constitute transfer as contemplated u/s 2(47) of the Act is it is family settlement which is a genuine and bonafide settlement entered into to exchange the plots. As per the exchange deed dated 3rd June, 2008 total market value was considered as ₹ 1,30,89,000/- which consists of the land of 136 sq. meter .....

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stamp duty authorities is higher and the issue can be set aside to the file of the AO for getting the property valued by DVO as stipulated u/s 50C(2) of the Act. The assessee also relied upon decision of ITAT, Agra in the case of Raj Kumari Agarwal v. DCIT in ITA no. 176/Agra/2013 orders dated 18-07-2014 reported in (2014) 150 ITD 0597(Agra Trib.). It was submitted that construction was completed before 1-10-2002 which is certified by BMC which is an additional evidence placed in paper book at p .....

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ing school run by the Trust and the same could never be used by the assessee and hence under family arrangement, the plots were exchanged and the Trust plot although encroached by 20 hutments was taken by the assessee so that the same can be developed , thus this family arrangement cannot be brought within the ambit of taxability under the Act. It was submitted that Karta Sh. Dattaray Namdev Sawant was engaged in business which is evident by copy of acknowledgement of return of income for assess .....

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f M/s Rajendra Dattaray Sawant , partnership firm for assessment year 2010-11 is placed on record to show that the said firm is in construction of residential projects and hence the Karta of the assessee is in business of land development and builders. Thus, it was contended that it is genuine and bona-fide family settlement and no income can be brought to tax on account of exchange of plots between the assessee and the Trust . The plot of land being business asset held as stock-in-trade cannot .....

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this plea is taken for the first time before the Tribunal. This plea is mixed question of fact and law and requires investigation of facts by the AO. The list of trustees of Vatsalabai Dattatray Charitable Trust has never been submitted before the authorities below and the plea that all the coparceners of the assessee are Trustee s of the Vatsalabai Dattatray Charitable Trust was never verified by the AO . The copy of Balance Sheet were not submitted before the authorities below to prove that th .....

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is only income from other sources declared by the assessee which mainly comprises of rental income. The assessee has also not objected to the value of the property as adopted by stamp duty authorities for stamp duty valuation purposes. The land and structure thereon was held by the assessee as capital asset and was rightly brought to tax as capital gains by the authorities below and it was also submitted that Section 50C of the Act is clearly applicable and value as computed by the stamp duty va .....

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aterial available on record including the case laws relied upon . We have observed that Sh Dattatray Namdev Sawant , Karta of the assessee without the permission and/or authority of Bai Zaveribai Purshottam Nathu Charitable Trust ( who were the lawful owner of the Plot of land at Bhatwadi , Village Karol, Ghatkopar(West) in Greater Mumbai bearing survey number 24, Hissa No. 4(part) and 6(part) and city survey number 68(part) admeasuring 100 square yards equivalent to 83.61 square meters (PB/page .....

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the said Mr Dattatray Namdev Sawant , Karta of the assessee without permission and authority . The said plot of land of 83.61 square meters was then sold by the said Bai Zaveribai Purshottam Nathu Charitable Trust for lumpsum consideration of ₹ 1,00,000/- whereby first agreement to sale was executed on 30-07-1996 by the said Bai Zaveribai Purshottam Nathu Charitable Trust in favour of the assessee and thereafter on 31-07-1996 irrevocable general power of attorney was executed in favour of .....

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ed 27-03-2006 whereby the said Zaverbai Purushottam Charitable Trust conveyed title of the said plot in favour of the assessee. Thus, the said plot was in-fact occupied by the Sh Dattatray Namdev Sawant, Karta of the assessee without authority of the lawful owner wherein he built structures without permission of the owner of the said land and permitted occupation of the plot along with structure comprising of ground and one upper floor to a Primary school run by Janakalyan Sevasanstha , a Charit .....

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pproval from Charity Commissioner was received on 06-05-2004 while conveyance deed was registered in favour of the assessee on 27-03-2006 with respect to the plots admeasuring in aggregated 136 square meters. The assessee has not produced its Balance Sheets of the instant previous year under appeal or for the earlier years to evidence that the assessee was reflecting the said plot of land as stock-in-trade. No evidence is brought on record that the assessee was engaged in the activity of builder .....

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of the said plot of land along with the structures thereupon ( now comprising ground floor and four floors when deed of conveyance was registered in 2006) was occupied by the Primary School run by Jankalyan Sevasanstha , a Public Charitable Trust duly registered under Bombay Public Trust Act,1950. The said Public Trust Jankalyan Sevasanstha got amalgamated with Vatsalabhai Dattatray Sawant Charitable Trust, another Public Charitable Trust registered under Bombay Public Trust Act, 1950 in the ye .....

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usts whereby the coparceners of the assessee are stated to be Trustees of the Trust running the school. Thus, intentions to acquire the plots by the assessee was to bring within its fold by way of ownership of the plots of land which was earlier occupied ( 100 square yards plot) by the assessee without permission of the lawful owner so that the continuation of the education imparted by the school can be smoothly continued and further advanced , and we have no hesitation in holding that the said .....

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raid the contentions of the assessee cannot be accepted as the onus was on assessee to bring on record cogent material/evidences to prove its contentions if it wants the Tribunal to believe its contentions that the plot was held as stock-in-trade or business asset by the assessee. Even Balance Sheets of the assessee were never filed before the Revenue of the instant year as well of previous year s. The same is also not brought on record even during appellate proceedings before the learned CIT(A) .....

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oors were existing on the said plot of land on the date of exchange on 03-06-2008. The assessee has produced certain approvals from BMC being obtained by Trust / Sh D N Sawant with respect to construction of certain floors for school building as additional evidences which need verification by the authorities below to conclusively prove and establish about the ownership of building structures as no cogent/conclusive material has been brought on record such as Balance Sheets of the Trusts , constr .....

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assessee and M/s Vatsalabhai Dattatray Sawant Charitable Trust clearly reveals that structure having area of 387.55 square meters on the property so transferred by the assessee to Vatsalabhai Dattatray Sawant Charitable Trust was constructed by the assessee (PB/Page 96) , thus leading to presumption that the assessee was the owner of the plot along with constructed structure on ground floor and four floors admeasuring 387.55 square meters which was owned by the assessee and not the Trust unless .....

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to prove the sources of construction cost being incurred for school building and determination of cost of construction actually incurred towards the same and consequently to establish the ownership of school building. Thus, we are inclined to set aside this issue to the file of AO with direction to verify , examine and enquire about the claim of the assessee with respect to the construction costs incurred for building the structures on the plot of land exchanged by the assessee with Vatsalabhai .....

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aw. Even for the sake of argument it is accepted that the school Building is owned by the trust then in that scenario the assessee has transferred land valued at ₹ 30,84,480/- and in lieu got the land from Vatsalabhai Dattatray Sawant Charitable Trust valued at ₹ 94,51,000/- , the taxability of the said consideration of ₹ 94,51,000/- received by the assessee in lieu of the plot of land valued at ₹ 30,84,480/- shall also be verified, examined and enquired by the AO before .....

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ent as coparcener of the assessee are Trustees of Vatsalabhai Dattatray Sawant Charitable Trust. We are afraid that this contentions of the assessee cannot be accepted . On the first blush this proposition advance by the learned counsel for the assessee looks very attractive but on deeper analysis soon it looses its sheen. The said Vatsalabhai Dattatray Sawant Charitable Trust is a Public Charitable Trust which is created for charitable objectives as laid down in its trust deed and is registered .....

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/ prohibitions with grave consequences on Public Charitable Trust on diversion of funds / properties for benefit of trustees/settler or relatives of the trustees/settler or concerns associated with the trustees/settler and funds / properties of Public Charitable Trust can only be utilized for the charitable and welfare objects for public welfare as laid down in the object clause in the Trust deed. Even on dissolution of the Trust there is a bar on distributing the funds/properties available at t .....

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in our considered view, family settlement/arrangement is word which is alien to concept of Public Charitable Trust which solely exists for public welfare rather than welfare of the Trustees/settler or their relatives or concerns associated with the Trustees/settler. This contention of the assessee that it has entered into family settlement / arrangement with Public Charitable Trust namely Vatsalabhai Dattatray Sawant Charitable Trust to exchange the properties and hence the same is not exigible .....

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under which clearly envisaged that exchange of capital asset is duly covered within ambit of transfer of capital asset exigible to tax u/s 45 of the Act :- Definitions. 2. In this Act, unless the context otherwise requires,- **** **** **** (47) ["transfer"in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset ; or ***** ***** Next contentions of the learned counsel for the assessee was that stamp duty valuation of the property transferred by it .....

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t Charitable Trust the stamp duty valuation authorities valued the same property at ₹ 1,30,89,000/-with in short span of period of merely 2 year, this argeument of learned counsel for the assessee suffers from basic fallacy as in the year 2006 the stamp duty valuation authorities valued the property consisting of plot of 136 square meters along with benefit of FSI of 54 square meters at ₹ 17,76,500/- on 27- 03-2006 which the assessee acquired from Bai Zaverbai Purushottam Charitable .....

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ucted area of structure admeasuring 387.5 square meters for stamp duty purposes which aggregatedto ₹ 1,30,89,000/- . It is the contention of the assessee that the plot of land occupied by the Trust namely Vatsalabhai Dattatray Sawant Charitable Trust was occupied by 20 hutments and thus additional costs are to be incurred by the assessee also suffers from infirmity as the perusal of the Judgment dated 15-03-2008 delivered by Hon ble Joint Charity Commissioner, Mumbai u/s 36(1)(a) of Bombay .....

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and the assessee wanted to exchange the same to commercially exploit the same which is admitted by the assessee and is also borne out from the assessment order passed by the AO . The said plot of land was thereafter gifted by the assessee to son of the Karta of the assessee on 11/06/2008 which is stated by the AO in the assessment order para 3 which is not denied by the assessee and later developed by son of the Karta of the assessee. Further, the assessee has taken a plea that if it is held to .....

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