TMI Blog2016 (3) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) TMI 346 - ITAT BANGALORE] wherein, the entire consideration was used to acquired new asset, therefore, there was no difficulty as nothing will be taxable u/s 11(1A)(a)(i) of the Act. The decision and the ratio laid down in CIT vs East India Charitable Trust [ 1992 (1) TMI 21 - CALCUTTA HIGH COURT] further supports the case of the assessee, if the capital gain is applied for charitable purposes of the assessee, not by acquiring a new asset, but for other charitable purposes, then there is no reason why its not be considered as application of income for charitable purposes. - Decided in favour of assessee - ITA No.1069/Mum/2013 - - - Dated:- 11-3-2016 - Shri Joginder Singh, Judicial Member, And Shri B.R. Baskaran, Accountant Member For the Assessee : Shri Vijay Kothari For the Revenue : Shri M. Salman Khan Shri Akhilendra Yadav - DR ORDER PER JOGINDER SINGH (JUDICIAL MEMBER) The Revenue is aggrieved by the impugned order dated 23/11/2012 of the ld. First Appellate Authority, Mumbai, holding that the application of ₹ 1,69,65,500/-, being capital gain arising from sale of buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,05,50,322 2002-03 ₹ 1,20,00,000 ₹ 90,55,186 2003-04 ₹ 1,22,73,125 ₹ 15,05,697 2005-06 ₹ 67,26,875 ₹ 67,26,875 Total ₹ 4,00,00,000 ₹ 2,78,38,080 Amount deemed to have been utilized for Charitable purpose (Cost of New Asset Cost of Original Asset) (27838080 13301891) = ₹ 1,45,36,189 Taxable Long Term Capital Gains ₹ 3,41,169. The assessee declared taxable long term capital gains on sale of one of its property for ₹ 3,41,169/-. The return was processed u/s 143(1) of the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed by the assessee for the assessment years 2002-03 to 2004-05 ought not to have been considered as investment in new asset by the AO, as these investments had been made in the previous year prior to previous year in which the transfer of the capital asset took place. The action of the AO in accepting the claim of the assessee in this regard was erroneous and has resulted in prejudice to the interest of the revenue. This was the basis on which the DIT(E) issued a show cause notice to the assessee. 5. In reply to the aforesaid show cause notice, the assessee submitted that it had entered into an agreement for the sale of the property as early as 12-07-2001 and a transfer had taken place during the previous year relevant to assessment year 2002-03 and therefore, the capital gain cannot be brought to tax in assessment year 2002-03, though wrongly declared by he assessee in the return of income for the assessment year 2006-07. The asseseee further submitted that the computation of LTCG has to be done in accordance with the provisions of sec.45 to 55A of the Act and the assessee should be entitled to the benefit of indexation of the cost of acquisition of the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the assessee has utilized only ₹ 67,26,875/- of the sales consideration for acquiring new capital asset which is to be considered as per the provisions of sec.11(1A)(a)(ii). 5(c) Further, the AO has determined the capital gain by considering indexed cost of acquisition amounting to ₹ 2,51,22,641/- for which the assessee is not eligible since the income of charitable institution is to be computed on commercial principles and sec.11(1A) itself refers to net consideration . Therefore, what is required to be reinvested is the entire net consideration, after deduction relating to transfer. It is such amount, which is required to be invested. The question of calculation of capital gains with indexed cost and other requirements of sec.48 could have no application for this purpose in the case of charitable entities. 5(d) With regard to assessee s contention that the transfer of the asset in question took place in the FY: 2001-02 and no capital gain is taxable in the current year is not acceptable, as the assessee itself has chosen to offer the capital gain to tax in the current year. Raising the issue at this stage is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made during period after transfer of the capital asset that can be considered as application of income for the purpose of Sec.11(1A) of the Act. 9. On point (i) above, the learned counsel for the Assessee relied on the decision of the Amritsar Bench of ITAT in the case of Akhara Ghamanda Dass Vs. ACIT (2001) 114 Taxman 27 (ASR.)(Mag.) 68 TTJ (Asr.) 244, wherein the Amritsar Bench held that even in the case of Trusts capital gain has to be taxed and calculated in accordance with the provisions of Sec.45 to 55A of the Act and that all exemptions, exceptions, deductions and benefits specified in those provisions will be available even to a charitable trust. 10. On point (ii) above, the learned counsel for the Assessee relied on the decision of the Mumbai Bench of ITAT in the case of Trustees of Shri Ramanagar Trust Vs. Third ITO 13 ITD 426 (Mum) wherein it was held that advances received by a trust in the period earlier to the previous year in which transfer of a capital asset by a trust takes place, if invested in purchase of capital asset should be considered as application of capital gain for charitable purpose. 11. Thus it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of tax exemption of charitable and religious trusts through the Finance Act, 1970. Under one of these amendments, a charitable or religious trust would forfeit exemption from tax on its income if the trust funds, constituting its corpus or income, are invested in a concern in which the author or founder of the trust or any substantial contributor to it or any relative of such author, founder or contributor is substantially interested. Where the investment of the trust funds in such concern exceeds 5 per cent of the capital of the concern, exemption is forfeited in respect of the whole of the income of the trust, while in a case where the investment does not exceed 5 per cent, the exemption is lost only in respect of the income from such investment, the other income continuing to enjoy tax exemption. In order to enable charitable and religious trusts to change their investments suitably, without forfeiting exemption from tax, a specific provision was also made in the Income-tax Act to the effect that the aforesaid provisions would not apply in a case where the investment of the trust funds in the prohibited concerns does not continue after 31-12-1970. In order to avail of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to charitable or religious purposes, while in a case where only a part of the net consideration is utilised for acquiring the new capital asset, an amount, if any, by which the cost of acquisition of the new asset exceeds the aggregate of the cost of acquisition of the capital asset transferred and the cost of any improvements made to such asset, will be regarded as having been applied to such purposes. 15. The above provisions can be explained in the form of the following example. If the entire net consideration is used to acquire new asset then there is no difficulty as nothing will be taxable (Sec.11(1A)(a)(i) of the Act). When cost of acquisition and improvement of the asset transferred is say ₹ 10 lakhs, the net consideration is say ₹ 20 lakhs and the cost of the new asset is ₹ 11 lakhs then ₹ 1 lakh will be deemed as income applied for charitable purposes u/s.11(1A) of the Act (Section 11(1A)(a)(ii)). If the cost of acquisition of the new asset is only ₹ 10 lakhs or less than the benefit of exemption u/s.11(1A)(a) of the Act cannot be availed of. 16. The provisions of Sec.11(1A)(a)(ii) of the Act contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a capital asset by a trust takes place, if invested in purchase of capital asset in the period earlier to the previous year in which transfer of the capital asset takes place such purchase should also be considered as application of capital gain for charitable purpose. If that decision is applied then the difference between the sum of ₹ 2,78,38,080/- which is the investment out of net sale consideration received on transfer of capital asset made by the Assessee and the cost of the transferred asset would be deemed to have been applied to charitable or religious purposes. The expression Cost of the transferred asset is defined in Expln. (ii) to Sec.11(1A) of the Act, and it lays down that Cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of Sec.48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within meaning assigned to that expression in sub-clause (b) of Clause (1) of Section 55. Thus the difference between the capital gain utilized in acquisition of new assets viz., ₹ 2,78, 38,080 and the indexed cost of acquisition viz., ₹ 2,51,22,641 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire new asset is applied for charitable purposes then it cannot be taxed as the conditions mentioned in Sec.11(1) are satisfied. In this regard it was pointed out that in the order of assessment u/s.143(3) read with Sec.148 of the Act dated 30.12.2008 which was revised in the impugned order passed u/s.263 of the Act, the AO has computed total income of the Assessee as follows: XXXXXXXXXXXXXXX 21. It was argued that the above application over and above the income should be considered as application of capital gain for charitable purposes and therefore capital gain cannot be brought to tax. In this regard, reliance was placed on the decision of the Hon ble Calcutta High Court inthe case of CIT Vs. East India Charitable Trust 206 ITR 152 (Cal). The Assessee in the case before the Hon ble Calcutta High Court in the aforesaid decision was a trust. The assessment year involved was 1982- 83 for which the previous year ended on 31st Dec., 1981. During the relevant previous year, the assessee-trust sold shares of various companies which formed the corpus of the trust fund for a net consideration of ₹ 37,78,640. On this transaction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income which may be accumulated or set apart, any such voluntary contributions as are referred to in s. 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other person, then,- (a) in the case referred to in sub-cl. (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and (b) in the case referred to in sub-cl. (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. Admittedly, even as per the order of assessment there was application for charitable purpose, even after disallowance of depreciation made by the AO, of a sum of ₹ 1,60,23458 over and above the receipts of the Assessee during the previous year. The capital gain considered as not utilized for charitable purposes u/s.11(1A) of the Act is only a sum of ₹ 1,21,61,909.33 Ps. The surplus utilization of ₹ 1,60,23,458 should be sufficient to set off the capital gain not utilized for charitable purpose u/s.11(1A) of the Act. Thus the net deficit in this AY to be carried forwardfor set off in the later years would be ₹ 1,60,23,458 - ₹ 1,21,61,909.33 Ps. Viz., ₹ 38,61,909.67 Ps. 23. From the aforesaid discussion it is clear that though the order of the AO was erroneous, the same was not prejudicial to the interest of the revenue as no part of the capital gain became taxable because of loss of exemption u/s.11(1A) of the Act. Since the order sought to be revised u/s.263 of the Act was erroneous but not prejudicial to the interest of the revenue, jurisdiction u/s.263 could not have been invoked by the CIT. We hold accordingly and q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heads to decide the issue of allowability. As per the provision of section 1(1), the income which is applied towards the objects of the trust cannot be subject to tax. I, therefore, delete the addition of ₹ 1,69,65,500/- made by the Assessing Officer. Ground nos. 2 3 are allowed. 2.4. The ld. counsel for the assessee contended that the claim of the assessee also gets support from the following decisions:- A. Guruprashad Trust vs DCIT (2005) 93 TTJ (Chd.) 1103 B. DIT vs Girdharilal Shewnarain Tantia Trust (1993) 199 ITR 251 2.5. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the impugned amount was duly disclosed in the income and expenditure account and the expenditure is excess over the income. The total income credited to the account was ₹ 3,29,91,999/- and application towards the object of the trust was ₹ 4,72,02,440/-. Whereas, the Assessing Officer restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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