2010 (9) TMI 902 - AT - Income Tax

Trust Exempt from Capital Gains on Property Investments

Shri Surat Panjarapole Trust Versus Assistant Commissioner of Income-tax, Circle-3, Surat

The Tribunal allowed the appeal, granting the assessee exemption from capital gains under section 11(1A) as it complied with investment provisions of ... Charitable or religious trust - Exemption of income from property held under Issues Involved:1. Rejection of exemption claim for long-term capital gains.2. Eligibility for exemption under section 11(1A) of the Income-tax Act.3. Calculation of long-term capital gains.4. Investment of net consideration in fixed deposits.5. Compliance with section 11(5) of the Income-tax Act.Detailed Analysis:1. Rejection of Exemption Claim for Long-Term Capital Gains:The Departmental authorities rejected the assessee's claim for exemption of long-term capital gains arising from the acquisition of lands by the Surat Municipal Corporation (SMC). The authorities accepted the genuineness of the trust's activities but denied exemption on the capital gains, asserting that the lands were not used for charitable purposes. The Assessing Officer and CIT(A) both upheld this view, citing that the lands were barren, fallow, and not used for the trust's stated objectives.2. Eligibility for Exemption Under Section 11(1A):The assessee argued that the lands were held under trust for charitable purposes, and thus, the capital gains from their transfer should be exempt under section 11(1A). The Department contended that the lands were not used for charitable purposes, which the assessee rebutted by stating that the lands were used for grazing cattle and growing fodder. The Tribunal concluded that actual use of the land is not a prerequisite for exemption under section 11(1A) as long as the property is held under trust and not used for any non-charitable purpose.3. Calculation of Long-Term Capital Gains:The assessee computed the long-term capital gains and claimed that the entire net consideration was invested in fixed deposits, thus qualifying for exemption. The Department disagreed, stating the land was not used for charitable purposes, and therefore, the capital gains should be taxable. The Tribunal emphasized that the property was held under trust and the gains were correctly calculated and invested as per section 11(1A).4. Investment of Net Consideration in Fixed Deposits:The assessee invested the net consideration from the land transfer in fixed deposits with IDBI Bank and subsequently with State Bank of India. The Tribunal referred to CBDT Circular No. 883, which clarifies that investment in fixed deposits for a period of six months or more qualifies as acquiring another capital asset under section 11(1A). Hence, the investment in fixed deposits was deemed compliant with the provisions of the Act.5. Compliance with Section 11(5) of the Income-tax Act:The Tribunal reviewed the compliance with section 11(5), which lists permissible investments for trusts. The investment of the net consideration in fixed deposits was found to be in accordance with the specified modes of investment. The Tribunal held that the assessee met the conditions of section 11(5), thereby entitling it to exemption from capital gains tax.Conclusion:The Tribunal allowed the appeal, concluding that the assessee is entitled to exemption from capital gains under section 11(1A) as it complied with the investment provisions of section 11(5). The judgment emphasized that the property held under trust need not be actively used for charitable purposes to qualify for exemption, as long as it is not used for non-charitable purposes.