2018 (11) TMI 540 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Capital Gains for Charitable Trust

The Tribunal upheld the CIT(A)'s decision to delete the long term capital gains addition under Section 50C for a charitable trust. The trust's property ... Application of Section 50C to transactions approved by Charity Commissioner - Effect of statutory approval by Charity Commissioner on inference of understatement of consideration - Admission of additional evidence under Rule 46A of the Income Tax RulesApplication of Section 50C to transactions approved by Charity Commissioner - Effect of statutory approval by Charity Commissioner on inference of understatement of consideration - Whether the Assessing Officer was justified in invoking Section 50C and adopting the Stamp Valuation Authority/AIR value instead of the sale consideration approved by the Charity Commissioner and reflected in the registered sale deed. - HELD THAT: - The Tribunal concurred with the CIT(A)'s factual findings that the sale of the property was made with prior approval of the Charity Commissioner under the Bombay Public Trusts law, after public notice and objections were invited, and that the sale deed recorded the approved consideration. The Tribunal noted that the Charity Commissioner's approval involved a statutory procedure which binds the trust and was not controverted by the Revenue. Reliance placed by lower authorities on the Stamp Valuation Authority/AIR value was held inadequate to infer understatement of consideration in face of the statutory approval and the attendant restrictions on use of the property. The Tribunal also observed that relevant High Court decisions have considered the effect of Charity Commissioner approvals vis-a -vis allegations of understatement and that the factual matrix here supported the CIT(A)'s deletion of the addition under Section 50C.Addition under Section 50C substituting the stamp/AIR value for the approved sale consideration was deleted; Assessing Officer's invocation of higher valuation was not sustained.Admission of additional evidence under Rule 46A of the Income Tax Rules - Whether the CIT(A) erred in admitting and relying on the assessee's registered valuer's report and Charity Commissioner's approval without issuing notice to the Assessing Officer under Rule 46A. - HELD THAT: - The Tribunal found no merit in the Revenue's contention that Rule 46A was violated. The Charity Commissioner's order approving the sale and the circumstances of that statutory approval were part of the paper record and bore on the correctness of the sale consideration; those facts were not disputed by Revenue. Given that the statutory approval was the basis for the registered sale deed and had been placed before the appellate authority, the CIT(A)'s admission and reliance upon that material and the registered valuer's certificate was held to be permissible in the appellate proceedings.CIT(A)'s admission and reliance on the additional evidence (registered valuer's report and Charity Commissioner's approval) was upheld; no infirmity under Rule 46A found.Final Conclusion: Revenue's appeal is dismissed; the addition of long term capital gains by invoking Section 50C was deleted in view of the Charity Commissioner's statutory approval of the sale consideration and the appellate admission of supporting evidence; the assessee's cross-objection is dismissed as not pressed. Issues:1. Appeal against CIT(A)'s order reversing long term capital gains addition under Section 50C of the Income Tax Act.2. Cross objection by the assessee claiming inapplicability of Section 50C due to being a charitable trust assessed under a special provision u/s.11 of the Act.Analysis:1. The Revenue's appeal challenged the deletion of long term capital gains addition of &8377; 70,34,635/- by invoking Section 50C of the Act. The CIT(A) reversed the Assessing Officer's action, emphasizing that the sale of the property was approved by the Charity Commissioner, and the fair market value was estimated at &8377; 12,41,000/- by a Registered-Valuer. The Charity Commissioner's approval was considered binding on the trust, and the lower appellate authority noted restrictions on the property's usage, leading to the deletion of the addition. The Revenue's argument regarding violation of Rule 46A of the Income Tax Rules was dismissed, citing precedents that upheld approvals by statutory authorities under the Bombay Trusts Act. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's substantive ground and dismissing the appeal.2. The assessee's cross objection contended that Section 50C was not applicable due to being a charitable trust assessed under a special provision u/s.11 of the Act. The cross objection was based on the approval of the property sale by the Charity Commissioner and the valuation by a Registered-Valuer. However, in light of the Tribunal's decision on the Revenue's appeal, the assessee chose not to press the cross objection, leading to its dismissal. The Tribunal dismissed the Revenue's appeal and the assessee's cross objection accordingly on March 16, 2018.This detailed analysis outlines the key arguments, findings, and decisions in the legal judgment concerning the Revenue's appeal and the assessee's cross objection related to long term capital gains addition and the applicability of Section 50C to a charitable trust under special provisions of the Income Tax Act.