TMI Blog1997 (1) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the contention of the AO that the exemption of the trust stood forfeited and that the trust could not avail the benefit of exemption under s. 11(1A) of the IT Act. That the learned CIT(A) further erred in law and on facts in summarily brushing aside the elaborate submissions of the appellant in regard to its claim for entitlement of exemption under s. 11 of the IT Act." 2. The assessee is a charitable trust settled under the trust deed executed on 31st March, 1984 by Shri Jayanti Lal Hirjibhai Bhatt and his wife Smt. Saraswati Jayantilal Hirjibhai Bhatt; both residents of Junagadh, with the following aims and objects: (i) To develop the education and sanskrit language and to develop the cow generation and to give such knowledge to common people of India to built the strong culture and unity of Indian people, (ii) To build the sanskrit pathshalas schools, colleges and research centres for the canvassing of sanskrit language and to attract the students for sanskrit language knowledge, (iii) Over and above sanskrit literature any kind of other literatures and subjects should be involved in the canvassing for the colleges, research centres liabrarires, boardings and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission from the office of the Charity Commissioner was to be obtained and the agreement was to be implemented subject to this. (b) Moreover, necessary condition and prior approval of the office of the Collector at Junagadh was also to be obtained; (c) The physical possession of the land was to be handed over by the appellant Trust to the purchasers only upon the execution of the final sale deed". The above terms and conditions were clearly recorded in art. (3) of the agreement of sale and the agreement was subject to the fulfilment of the abovereferred conditions. 2.1 The necessary permission from the office of the Charity Commissioner allowing sale of land in terms of the agreement for sale was received on 7th Oct., 1991. Further, the Collector of Junagadh granted permission to the trust for sale of land vide his permission letter, dt. 31st March, 1992. 2.2 The AO was of the opinion that since the assessee-trust had entered into the agreement for sale of land on 20th June, 1984 and had also received consideration of Rs. 22 lacs during the period relevant to the asst. yr. 1992-93, therefore, the entire capital gains arising out of the sale of land is chargeable in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing exemption under s. 11 of the IT Act. Further, the IT Act has clearly laid down specific conditions enumerated in s. 11(2) which are required to be satisfied for claiming the exemption under s. 11/11(A) and therefore, looking to the facts and circumstances of the case, I decline to agree with the Authorised Representative that a condition can be of academic interest only. Also, in my opinion, in view of s. 2(47), sub-cl. (v) introduced w.e.f. 1st April, 1988, the decision of the AO to tax long-term capital gains in asst. yr. 1992-93 is in order. Thus, the appeal fails on all the four grounds." 4. Shri M.M. Patel, the learned counsel for the assessee submitted that the CIT(A) erred in law and on facts in rejecting the assessee's contention that where mere advance under the agreement for sale was received but no possession of the property had been parted with during the year under appeal, there would be no liability to capital gains, since there was no transfer within the meaning of s. 2(47) of the Act. He drew our attention to s.2 (47) as amended by the Finance Act, 1987 which introduced sub-cl. (v) within the inclusive definition of the term "transfer" and also drew our attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of exemption under s. 11 of the Act. The learned counsel for the assessee submitted that it is not the case of the AO that any of the provisions of s. 13 are attracted or liable to be invoked in the case of the assessee-trust. Further the AO has not disputed the genuineness in regard to the registration of the trust by both the Charity Commissioner and also the CIT under s. 12A of the IT Act. According to the learned counsel, the ground of late filing of return cannot support the AO's contention of forfeiting the exemption under s. 11. As regards the charge of the AO that the assessee-trust did not carry out any charitable activities until 1st Feb., 1992, the learned counsel submitted that the assessee- trust did not have liquid resources to carry on activities for charitable purposes and it is for this reason that the trust decided to liquidate its asset being land so as to raise liquid resources which would enable it in carrying out of such activities. He submitted that the assessee enjoyed exemption under ss. 11 and 12 of the Act in all preceding years and also in the subsequent assessment year i.e. 1993-94. In this regard he drew our attention to the order of the AO passed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable trust necessary prior permission of the office of the Charity Commissioner was to be obtained and the agreement was to be implemented subject to this. Further the necessary condition was that prior approval of the office of Collector of Junagadh was also to be obtained and the physical possession of the land was to be handed over by the assessee to the purchasers only upon execution of the final sale deed. It is a matter of record that the transfer effectively took place only at the time of final execution of the sale deed when the physical possession of the respective plots was handed over to the final purchasers. In fact, as pointed out above, the assessee-trust was not in a position to hand over the possession that all till 31st March, 1992 since the final permission from the office of Collector of Junagadh was received only in April, 1992. Thus, the transfer took place not in the assessment year under appeal i.e. asst. yr. 1992-93 but in the subsequent assessment year i.e. 1993-94 and the entire capital gains arising out of the transfer were placed before the AO but the same were not subjected to tax as these were invested in nationalised banks and post offices. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned AO has not disputed the genuineness in regard to the registration of the trust, by both the Charity Commissioner and also the CIT under s. 12A of the IT Act. The registration has been given by the CIT under s. 12A and it is not understood as to how the ITO acting on his own can forfeit the same when the assessee has not contravened the provisions of s. 13 of the Act. As regards the AO's charge that the trust filed its return of income late in contravention of the provisions of s. 139(4A) and hence it is not entitled to exemption under s. 11, we note that it is nowhere prescribed under the IT Act that merely because a trust files its return of income late in contravention of the provisions of s. 139(4A), it will lose exemption under s. 11. The only recourse the AO can have in such a case is to invoke the provisions of s. 272A(2)(e) initiating penalty proceedings for late submission of the return. Therefore, the ground of late filing of appeal return cannot support the AO's observation of forfeiting exemption under s. 11 of the Act. 6.3 As regards the AO's observation that the assessee-trust did not carry out any charitable activities until 1st Feb., 1992, as pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt observed as follows: "As organisation with the primary object of promoting social and physical well-being of persons to enable them to participate in sports and games has a charitable purpose especially where the object is not restricted to its members and there is no inhibition of participation by members of the public in such sports and games. Just as development an industry leads to economic prosperity, similarly participation in games leads to the physical well-being which is a sine qua non of a healthy society. The dominant object in the instant case being charitable in nature the assessee was entitled to exemption from taxation under s. 4(3)(i) of the Indian IT Act, 1922." The above ruling of the Madras High Court favours the assessee and not the Revenue as wrongly held by the CIT(A). The assessee before us is a genuine charitable trust with the laudable objects of promoting Education ancient language of this country viz. Sanskrit and other objects as detailed in para-2 above. We are accordingly unable to agree with the findings of the CIT(A) which are not based on correct appreciation of law. 7. In the light of above discussion, we reverse the findings of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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