1999 (3) TMI 24 - HC - Income Tax

Court rules in favor of assessee: donations as application of income for charity, capital gains exempted.

Commissioner Of Income-Tax Versus Aurobindo Memorial Fund Society

Commissioner Of Income-Tax Versus Aurobindo Memorial Fund Society - [2001] 247 ITR 93, 162 CTR 254, 108 TAXMANN 271 Issues: The judgment involves two main issues: (a) Whether donations made by the assessee to other institutions qualify as application of income for charitable purposes under section 11 of the Income-tax Act, 1961; and (b) Whether the capital gains arising from the sale of a property should be exempted under section 11(1A) of the Act.Issue (a): During the assessment year 1984-85, the assessee-trust donated funds totaling Rs. 7,25,000 to various trusts and claimed deduction under section 11 of the Act. The Income-tax Officer initially rejected the claim, but the Commissioner of Income-tax (Appeals) allowed it, stating the donations were for charitable purposes. The Tribunal upheld this decision based on the precedent set by the court in CIT v. Thanthi Trust [1982] 137 ITR 735, which allowed exemption under section 11 for trusts applying money for charitable purposes. Consequently, the first question was answered in favor of the assessee.Issue (b): In the same assessment year, the assessee-trust sold a garden and received Rs. 28,000, seeking exemption under section 11(1A) of the Act. The Income-tax Officer and the Commissioner of Income-tax (Appeals) initially denied the claim, but the Tribunal ruled in favor of the assessee, citing the decision in CIT v. Ambalal Sarabhai Trust No. 3 [1988] 173 ITR 683 by the Gujarat High Court. This decision held that a charitable trust was entitled to exemption on capital gains from the sale of assets if section 11(1A) requirements were met. Consequently, the second question was answered in favor of the assessee.