TaxTMI 
TaxTMI 
2012 (7) TMI 344
X X X X Extracts X X X X
X X X X Extracts X X X X
....real estate activities and its total turnover was to the tune of Rs.194.24 crores and had earned a profit of Rs.57.38 crores. The Assessee trust had claimed exemption u/s.80-IB(10) of the Act in respect of the aforesaid profits. The AO had allowed the same. According to DIT, Charitable trusts are not eligible for deduction u/s.80-IB(10) of the Act and therefore the action of the AO in allowing the aforesaid claim of the Assessee was erroneous and prejudicial to the interests of the revenue. Accordingly a show cause notice dated 18.10.2011 was issued by the DIT proposing revision of the order of the AO u/s. 263 of the Act. 4. The Assessee by reply dated 21.11.2011 submitted that: (a) The AO while completing the assessment u/s.143(3) of the Act had applied his mind to the claim of the Assessee for deduction u/s.80-IB(10) of the Act and thereafter allowed the claim of the Assessee. The Assessee submitted that the view taken by the AO was a possible view and in exercise of powers u/s.263 of the Act, the DIT cannot substitute his view. In this regard, the Assessee relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessee is entitled to claim deduction u/s.80-IB(10) of the Act, the DIT held that income as far as it relates to income derived from property held under trust wholly for charitable or religious purposes is concerned is not equivalent to total income under the Act and therefore Sec.14 providing for different heads of income and total income and chapter VIA are not applicable while computing income u/s.11 of the Act. In this regard the DIT also referred to a circular of CBDT viz., Circular No.5 LXX-6 dated 19.6.1968 wherein it has been explained as follows: "It would be incorrect to assign to the word "Income" used in Section 11(1)(a), the same meaning as has been specifically assigned to the expression "total income" vide Section 2(45)." In the case of a business undertaking held under trust, its "income" disclosed by the account will be eligible for exemption under Section 11(1). The permitted accumulation of 25 per cent will also be calculated with reference to this income. Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense i.e., book income, after ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ircumstances of the case and in the light of the proper interpretation of section 11 of the Income-tax Act, 1961, the Tribunal was justified in holding that the capital gain amounting to Rs. 2,91,644 is eligible for deduction under section 80T of the Income-tax Act, 1961?" The Hon'ble Calcutta High Court held that under section 11 of the Income-tax Act, 1961, income derived from property held under trust for charitable or religious purposes is exempt from income-tax to the extent such income is actually applied to such purposes during the previous year itself or within the three months next following. As "income" includes "capital gains", a charitable or religious trust would forfeit exemption from income-tax in respect of its income by way of capital gains unless such income is also applied for the purposes of the trust during the stipulated period. By sub-section (1A), it has been provided that, in a case where a capital asset being property held under trust for charitable or religious purposes is transferred and the whole or any part of the net consideration for the transfer (i.e., full value of consideration as reduced by the expenditure incurred wholly and exclusively in conne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... being heard to the Assessee. 10. Aggrieved by the order of the DIT, the Assessee has preferred the present appeal before the Tribunal. The grounds of appeal raised by the Assessee read as follows: "1. That the order of the learned Director of Income Tax (Exemption) in so far it is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case. 2. That the learned Director of Income Tax (Exemptions) erred in law and on facts in invoking jurisdiction u/s 263 of the Act even though the assessment order is not erroneous and prejudicial to the interest of the revenue. 3. That the learned Director of Income Tax (Exemptions) erred in law and on facts in holding that the learned Assessing Officer has not applied his mind in allowing the deduction u/s 801B(l0) of the Act. 4. That the learned Director of Income Tax (Exemptions) erred in law and on facts in holding that the appellant is not entitled to the deduction u/s 801B(10) of the Act. 5. That the learned Director of Income Tax (Exemptions) erred in law and on facts in holding that the total income of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... laid down in the Act and if so computed the Assessee should be allowed deduction u/s.80-IB(10) of the Act. In this regard, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Harprasad & Co. Ltd. v. CIT 99 ITR 118 (SC) wherein it was observed at page 125 as follows: "Although section 6 classifies income under six heads, the main charging provision is section 3 which levies income-tax, as only one tax, on the "total income" of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income, profits and gains referred to in section 4(1)". Secondly, it must be "computed in the manner laid down in the Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." 13. Based on the above observations it was argued that in order to be assessed to tax, it is necessary that the income should be classified under various heads under Chapter IV, aggregated in accordance with Chapter VI, deduction permissible under Chapter VIA be given and the resultant figure be taken as tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility : Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;" 18. The first proviso was inserted by the finance Act, 2008, w.e.f. 1-4- 2009. The learned counsel for the Assessee submitted that in AY 2009-10, the activity of construction of building and sale was in the nature of trade, business, commerce for consideration and therefore the income from the said activity will stand excluded from the provisions of Sec.11 of the Act, in view of Sec.13(8) of the Act. His submission was that if Sec.11 is excluded, then the income of the Assessee has to be computed in accordance with the provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act. The AO in the order of assessment u/s.143(3) of the Act has not discussed anything regarding the claim of the Assessee for deduction u/s.80-IB(10) of the Act, but has allowed the claim of the Assessee for deduction u/s.80-IB(10) of the Act. The adequacy of enquiry done by the AO cannot be the basis to conclude that his order was erroneous. The decision of the Hon'ble Delhi High court referred to by the learned counsel for the Assessee in the case of Eon Technologies (supra) support the plea of the Assessee. The exercise of jurisdiction u/s. 263 of the Act on the ground of lack of enquiry regarding eligibility of the Assessee for deduction u/s.80-IB(10) of the Act cannot therefore be upheld. 21. The other reason for exercise of jurisdiction u/s.263 of the Act is with regard to the non-verification by the AO as to whether the income has been applied for charitable purpose, because u/s.11 what is exempt is income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. In the light of the Hon'ble Calcutta High Court decision in the case of in the case of Giridharilal Shew....