TMI Blog2016 (9) TMI 1570X X X X Extracts X X X X X X X X Extracts X X X X ..... ue due to establishment of Heart and Eye Hospital by group trust, it sold the capital assets and applied the proceeds by way of donation to group trust which is running ear and Eye Hospital. The trust is not allowed to do any business by its rules and regulations and the trust has not carried out any business and as such surplus on sale of land is not business income but is capital gain. Land Development expenses disallowance - AO has proceeded on a complete wrong footing. It is not true that most of the land development expenses have been incurred after the sale of land. Rather expenses were incurred prior to sale and payment was made after realization from sale of land. The AO s note that there is no justification of fencing of land already sold by the assessee trust after sale of a land is not true rather by fencing land was made fit for sale - there is no reason to disallow land development expenses. Indexation for land sold should be allowed as contended earlier this is capital gain and not business income. Donation paid to Brahmanand Sewa Sadan should be allowed as application of income of trust for charitable purpose as:- a) Capital gains are part of income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Donation 7,100.00 Bank interest 4,765.00 11,865.00 8,354.311.71 Utilisastion of funds Donation 7,650,000.00 Others 5,274.00 7,655,274.00 Surplus 6,655,274.00 Tax liability (as surplus is less than 15% of total income) NIL 3. It can be seen from the aforesaid computation of total income by the assessee and assessee had claimed application of income for charitable purpose more than 85% of its total and thus claimed that its total income is NIL. 4. The Assessing Officer was, however, of the view that the property was sold by assessee for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as under:- Income from business: Sale of land 1,39,98,236/- Cost of land sold (indexation not allowed) 1,26,730/- Net surplus 1,38,71,506/- Income from other sources Other income 11,865/- Less: Expenses 5,274/- 6,591/- Addition u/s. 50C 12,500/- 1,38,90,597/- Assessable income 1,38,90,600/- Rounded off to 1,38,90,600/- 7. On appeal by the assessee Ld. CIT(A) held that assessee was entitled to exempt u/s 11(1) of the Act as it applied the capital gains for charitable purpose. The following relevant observation of Ld. CIT(A) reproduced below:- 3.5 I have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the rival submissions. A charitable trust can spend away the proceeds of the capital gain on sale of the capital assets in the following modes A It can apply proceeds to charitable purposes as was allowed prior to insertion of Section 11 (1A) of the Actand as is allowed even after insertion of Section 11(1A) of the Act. B. It can accumulate proceeds within the limits generally and beyond the limits by following laid down procedure that is filing Form No. 10 under Section 11(2) of the Act. C. It can make donation to other charitable trusts. D. IT can invest proceeds of sale of capital assets in acquiring new capital asset and the capital gain shall be deemed to have been applied to charitable or religious purposes because of insertion of Section 11(1A) of the Act which has been specifically inserted to allow this exemption by Finance No. 2 Act 1971 with retrospective effect from 1.4.1962. 11. Prior to this insertion of Section 11(1A) of the Act acquisition of new capital asset on sale of old asset would not be deemed application to charitable or religious purpose and as such charitable trust were liable to tax if they were unable to apply whole of sale proceeds to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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