TMI Blog2022 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... uch inter-se transfer between two charitable trusts being not disputed by the department, cannot be a ground to deny the benefit under Section 11(1A) of the Act. The sale proceeds need not always be invested in another capital asset to be held in the name of the charitable trust. There may be circumstances where a charitable trust is not applying for charitable or religious purposes to the extent to which such income has to be applied to such purpose in India directly and intends to invest in another capital asset to be so held by such charitable institutions. Certainly, it is not a circumstance involved herein. No doubt, the sale proceeds are transferred to another charitable and religious purpose, the same would necessarily come within the ambit of Section 11(1A). Hence, the finding of the Tribunal placing reliance on the judgment of Al Ameen Educational Society, supra, though has not reached finality on the merits of the case for want of monetary reliefs, the same cannot be held to be invalid or illegal in view of the provisions of the Act as discussed above. As in the case of Commissioner of Income Tax v. Maria Social Service Society [ 2018 (11) TMI 1056 - KARNATAKA HIGH COU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions stipulated under Section 11(1)(a) not being fulfilled? 3. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that inter-trust donation out of sale proceeds of lands is application of income of the trust, not appreciating that the asset sold could represent corpus fund or accumulation under Section 11(a) or (b) of the Act and the inter-trust donation is prohibited under explanation to Section 11(2) of the Act.? 3. The assessee is a religious and charitable Trust and society registered under Section 12A of the Act and has filed its return of income for the assessment year under consideration declaring nil income after claiming exemption under Section 11 of the Act. The case was taken up for consideration and the assessment was concluded under Section 143(3) of the Act, wherein the taxable income was determined at ₹ 27,66,73,445/- denying exemption under Section 11 of the Act claimed by the assessee. Being aggrieved, the assessee has preferred an appeal before the Commissioner of Income Tax (Appeals) and the same came to be allowed in part giving partial relief to the assessee. Being aggrieved, the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2002 with the explanatory notes to the Finance Act, 2002. Leaned Senior Counsel submitted that the legislature has given statutory force to the circular instructions. 8. It was submitted that in order to give effect to Section 11(1A), inasmuch as investing the sale proceeds of a charitable institution to acquire another capital asset, a legal fiction has been created by Section 11(1A) to bring it on par with the provisions of Section 11(1)(a) for application of the charitable purposes. As specified in Section 11(1)(a) of the Act, income derived from the property held under the trust for charitable or religious purposes, to the extent to which such income is applied to such purposes in India and where such income is accumulated or set apart is not in excess of 15% income on such income from such property. Thus, in the light of this provision, application of income derived from the property, i.e., the sale proceeds of the property, is nothing but a capital gain and this income if applied to the object and purpose of the Trusts in India, Section 11(1A) benefit cannot be denied to the assessee. Further inviting attention of this Court to the Explanation thereof, learned Senior C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all applicable to the facts of the present case. Thus, the learned counsel submitted that substantial question of law No.3 has no relevance to the facts of the present case and no adjudication on the said substantial question of law is required by this Hon ble Court. 10. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. Section 11(1) (a) and (b) reads thus; 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which such income is applied to such purposes in India, which is the first limb of Section 11(1)(a) and is relevant for deciding the issue on hand, would necessarily indicate that such income which has been derived from the sale proceeds of the property held by the Trust wholly for charitable and religious purpose, if applied to such purpose in India, it shall not be included in the total income of the previous year of the trust in respect of such income. What is material is that such income should be applied for religious or charitable purposes in India to attract Section 11(1)(a) of the Act. 12. The relevant paragraph of the Circular No.52 dated 30.12.1970 is quoted hereunder for ready reference; Under Section 11(1), a religious or charitable trust which accumulates its income in excess of 25 per cent of its total income of ₹ 10,000, whichever is higher, is liable to pay tax on the income accumulated by it in excess of the said limit. In other words, such a trust has to apply at least 75 per cent of its total income, including any capital gains forming part of it during the relevant previous year, in order to be entitled to exemption on the entire amount of its i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as having been applied for the religious or charitable purposes of the trust within the meaning of section 11(1). 13. Paragraph 76 of Circular No.52 indicates that with a view to placing the aforesaid administrative instructions on a legal footing and removing the disadvantage to charitable and religious trusts for the past as also the future, section 11 has been amended, by section 5 of Finance (No.2) Act, 1971, by way of insertion of a new sub-section (1A). 14. Further, in paragraph 21.1 of Circular No.8/2002 dated 27.08.2002, it is clarified about the restriction on the application of the accumulated income of the charitable and religious trusts it is categorically stated that through the Finance Act, 2002, an Explanation has been inserted below sub-section (2) of Section 11 so as to provide that any amount paid or credited out of income from property held under trust referred to in clause (a) or clause (b) of sub section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other education institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed for acquiring another capital asset would alone cannot be the criteria for granting exemption under Section 11(1A) or in other words, no denial could be made if the sale proceeds are transferred to another charitable trust. Such inter-se transfer between two charitable trusts being not disputed by the department, cannot be a ground to deny the benefit under Section 11(1A) of the Act. The sale proceeds need not always be invested in another capital asset to be held in the name of the charitable trust. There may be circumstances where a charitable trust is not applying for charitable or religious purposes to the extent to which such income has to be applied to such purpose in India directly and intends to invest in another capital asset to be so held by such charitable institutions. Certainly, it is not a circumstance involved herein. No doubt, the sale proceeds are transferred to another charitable and religious purpose, the same would necessarily come within the ambit of Section 11(1A). Hence, the finding of the Tribunal placing reliance on the judgment of Al Ameen Educational Society, supra, though has not reached finality on the merits of the case for want of monetary reliefs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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