Charitable trust wins appeal as tax officer fails to prove asset misuse under section 13

ITAT Patna dismissed Revenue's appeal against CIT(A)'s deletion of capital gains addition on sale of vehicles and flat by charitable trust. The assets purchased in 2008 formed part of block assets under pre-2015 provisions, and AO failed to properly apply the relevant scheme. Regarding properties allegedly used for non-educational purposes, AO made additions without establishing factual use by specified persons under section 13(2)/(3). No investigation was conducted to prove misuse by associated persons. CBDT Circular clarified that property acquisition isn't inherently disallowed for charitable institutions unless actually misused by excluded persons at concessional rates. AO's additions lacked proper understanding of statutory provisions and factual basis.

---

---

Issues Involved:
1. Deletion of addition of Rs. 99,15,000/- as capital gain on the sale of two vehicles and a flat.
2. Deletion of addition of Rs. 20,13,54,800/- under section 13(3) read with section 13(2) of the Income Tax Act for properties not used for educational purposes.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 99,15,000/- as Capital Gain:
The main grievance of the Revenue is that the CIT(Appeals) erred in deleting the addition of Rs. 99,15,000/-, which was added by the Assessing Officer as capital gain on the sale of two vehicles and a flat. The Assessing Officer contended that since the assessee claimed the cost of acquisition of these assets towards the application of income, the entire sale consideration should be treated as capital gain. The CIT(Appeals) deleted the addition by noting that the assets were part of a block of assets, and depreciation had been claimed on these assets. The CIT(Appeals) relied on the CBDT Circular No. 469 dated 23.09.1986, which explains the concept of block of assets and how capital gains should be computed. The Tribunal upheld the CIT(Appeals) decision, emphasizing that the assessee's case falls within the examples provided in the CBDT Circular, and the Assessing Officer failed to properly apply the block of assets concept. Consequently, the addition of Rs. 99,15,000/- was rightly deleted.

2. Deletion of Addition of Rs. 20,13,54,800/- under Section 13(3) Read with Section 13(2):
The Revenue's second grievance is that the CIT(Appeals) erred in deleting the addition of Rs. 20,13,54,800/- made by the Assessing Officer under section 13(3) read with section 13(2) of the Income Tax Act. The Assessing Officer disallowed the amount on the grounds that the properties in New Delhi, Mumbai, and Goa were not used for educational purposes and were presumed to be used for personal benefit. The CIT(Appeals) found that the properties in Delhi and Mumbai were not put to use in the year under consideration, and the property in Goa was used for adult learning. The CIT(Appeals) noted that the Assessing Officer failed to provide evidence that the properties were used by specified persons without adequate compensation. The Tribunal agreed with the CIT(Appeals), stating that the Assessing Officer did not demonstrate that the properties were used by specified persons or their relatives. The Tribunal also highlighted that the provisions of section 13(2)(b) require determining the fair rental value of the property if used by specified persons, which the Assessing Officer failed to do. Therefore, the addition of Rs. 20,13,54,800/- was rightly deleted by the CIT(Appeals).

Conclusion:
In the result, the appeal of the Revenue is dismissed. The Tribunal upheld the CIT(Appeals) decisions on both issues, finding no merit in the Revenue's contentions. The order was pronounced in the open Court on 14.07.2023.

---