TaxTMI 
TaxTMI 
2016 (3) TMI 1349
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....2.1. We have considered the rival submissions and perused the material available on record. 2.2. So far as, the merits of the appeal is concerned, the ld. counsel relied upon the decision of the Tribunal in AL Ameen Education Society vs DIT(Exem.)139 ITD 245 (Bangalore) by contended that the assessee had already applied the income for the purpose of educational and medical activities. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion of the aforesaid order of the Tribunal (ITA No.575/Bagalore/2011); 139 ITD 245 for ready reference:- 2. The assessee is a charitable trust carrying on the charitable activity of providing education. For assessment year 2006-07, the assessee filed return of income declaring a net deficit of Rs. 3,61,77,979/-. During the previous year, the assessee sold land belonging to it. In the return the assessee had given the computation of capital gains on sale of land as follows: CAPITAL GAINS Sale proceeds Rs. 4,00,00,000 Less: Indexed cost of acquisition Rs. 2,51,22,642 Long term capital gain Rs. 1,48,77,358.33....
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....pute the capital gains. According to the DIT(E) when a charitable trust derives capital gain on sale of its capital asset then the provisions of sec.11(1A) will be applicable. From the perusal of the capital gains which we have set out above, it can be seen that the transfer is claimed by the assessee to have taken place during the previous year relevant to assessment year 2006-07. The assessee has been receiving advance for the sale of the property right from the previous year relevant to assessment year 2002-03. Even prior to the Assessment year 2006-07, the Assessee had invested sale consideration received on transfer of the capital asset in new assets. According to the DIT(E), the investment in purchase of capital asset claimed by the assessee for the assessment years 2002-03 to 2004-05 ought not to have been considered as investment in new asset by the AO, as these investments had been made in the previous year prior to previous year in which the transfer of the capital asset took place. The action of the AO in accepting the claim of the assessee in this regard was erroneous and has resulted in prejudice to the interest of the revenue. This was the basis on which the DIT(E) is....
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....rust for charitable or religious purposes, the capital gain arising from the transfer of such capital asset shall be deemed to have been applied for charitable or religious purposes to the extent specified therein, if the whole or any part of the sale consideration is utilized for acquiring another capital asset to be so held. As per the provisions of section 11(1A) the investment in new capital assets for computing the capital gains has to be made during the year in which capital gain is taxable. The investment in new assets made in earlier years cannot be considered during this year in which capital gain is offered to tax During the year, the assessee has utilized only Rs. 67,26,875/- of the sales consideration for acquiring new capital asset which is to be considered as per the provisions of sec.11(1A)(a)(ii). 5(c) Further, the AO has determined the capital gain by considering indexed cost of acquisition amounting to Rs. 2,51,22,641/- for which the assessee is not eligible since the income of charitable institution is to be computed on commercial principles and sec.11(1A) itself refers to 'net consideration'. Therefore, what is required to be reinvested is the entire ne....
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.... order u/s.263 of the Act was: (i) that when capital assets are transferred by a charitable trust, the capital gain on such sale has to be determined in accordance with the provisions of Sec.11(1A) of the Act and not under the normal provisions of the Act viz., Section 45 to 55A of the Act. (ii) The investment of the capital gain in acquiring another capital asset by the Assessee was in the earlier years and such investment cannot be said to be application of income for charitable trusts. It was only investments made during period after transfer of the capital asset that can be considered as application of income for the purpose of Sec.11(1A) of the Act. 9. On point (i) above, the learned counsel for the Assessee relied on the decision of the Amritsar Bench of ITAT in the case of Akhara Ghamanda Dass Vs. ACIT (2001) 114 Taxman 27 (ASR.)(Mag.) 68 TTJ (Asr.) 244, wherein the Amritsar Bench held that even in the case of Trusts capital gain has to be taxed and calculated in accordance with the provisions of Sec.45 to 55A of the Act and that all exemptions, exceptions, deductions and benefits specified in those provisions will be available even to a charitable....
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....asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) "ap....
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....the capital gains arising from such transactions should be utilised for charitable or religious purposes, during the accounting year itself or within three months immediately following, has the unintended effect of progressively reducing the corpus of the trust and the income yielded by it. 74. This difficulty has been accentuated as a result of certain amendments made in the scheme of tax exemption of charitable and religious trusts through the Finance Act, 1970. Under one of these amendments, a charitable or religious trust would forfeit exemption from tax on its income if the trust funds, constituting its corpus or income, are invested in a concern in which the author or founder of the trust or any substantial contributor to it or any relative of such author, founder or contributor is substantially interested. Where the investment of the trust funds in such concern exceeds 5 per cent of the capital of the concern, exemption is forfeited in respect of the whole of the income of the trust, while in a case where the investment does not exceed 5 per cent, the exemption is lost only in respect of the income from such investment, the other income continuing to enjoy tax exemp....
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....utilised for acquiring another capital asset to be held as part of the corpus of the trust, the capital gain arising from the transfer will be regarded as having been applied to charitable or religious purposes. Where the whole of such net consideration is utilised in acquiring the new capital asset, the entire amount of the capital gain will be regarded as having been applied to charitable or religious purposes, while in a case where only a part of the net consideration is utilised for acquiring the new capital asset, an amount, if any, by which the cost of acquisition of the new asset exceeds the aggregate of the cost of acquisition of the capital asset transferred and the cost of any improvements made to such asset, will be regarded as having been applied to such purposes." 15. The above provisions can be explained in the form of the following example. If the entire net consideration is used to acquire new asset then there is no difficulty as nothing will be taxable (Sec.11(1A)(a)(i) of the Act). When cost of acquisition and improvement of the asset transferred is say Rs. 10 lakhs, the net consideration is say Rs. 20 lakhs and the cost of the new asset is Rs. 11 lakhs t....
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....or acquiring new capital asset were as follows: XXXXXXXXXXXXXXXXXXX 17.1 In the case of Trustees of Shri Ramanagar Trust Vs. ThirdITO13 ITD 426 (Mum) it has been held that advances received by a trust in the period earlier to the previous year in which transfer of a capital asset by a trust takes place, if invested in purchase of capital asset in the period earlier to the previous year in which transfer of the capital asset takes place such purchase should also be considered as application of capital gain for charitable purpose. If that decision is applied then the difference between the sum of Rs. 2,78,38,080/- which is the investment out of net sale consideration received on transfer of capital asset made by the Assessee and the cost of the transferred asset would be deemed to have been applied to charitable or religious purposes. The expression "Cost of the transferred asset" is defined in Expln. (ii) to Sec.11(1A) of the Act, and it lays down that "Cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of Sec.48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement th....
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.... is also income of the charitable trust and to the extent to which is not applied in the manner set out in Sec.11(1A) (a)(ii) of the Act, will become taxable. If however such capital gain which is not used to acquire new asset is applied for charitable purposes then it cannot be taxed as the conditions mentioned in Sec.11(1) are satisfied. In this regard it was pointed out that in the order of assessment u/s.143(3) read with Sec.148 of the Act dated 30.12.2008 which was revised in the impugned order passed u/s.263 of the Act, the AO has computed total income of the Assessee as follows: XXXXXXXXXXXXXXX 21. It was argued that the above application over and above the income should be considered as application of capital gain for charitable purposes and therefore capital gain cannot be brought to tax. In this regard, reliance was placed on the decision of the Hon'ble Calcutta High Court inthe case of CIT Vs. East India Charitable Trust 206 ITR 152 (Cal). The Assessee in the case before the Hon'ble Calcutta High Court in the aforesaid decision was a trust. The assessment year involved was 1982- 83 for which the previous year ended on 31st Dec., 1981. During the rele....
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.... the purposes of cls. (a) and (b),- (1) in computing the twenty-five per cent. of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in s. 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other person, then,- (a) in the case referred to in sub-cl. (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and (b) in the case referred to in sub-cl. (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the optio....
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.... itself. 22. Admittedly, even as per the order of assessment there was application for charitable purpose, even after disallowance of depreciation made by the AO, of a sum of Rs. 1,60,23458 over and above the receipts of the Assessee during the previous year. The capital gain considered as not utilized for charitable purposes u/s.11(1A) of the Act is only a sum of Rs. 1,21,61,909.33 Ps. The surplus utilization of Rs. 1,60,23,458 should be sufficient to set off the capital gain not utilized for charitable purpose u/s.11(1A) of the Act. Thus the net deficit in this AY to be carried forwardfor set off in the later years would be Rs. 1,60,23,458 - Rs. 1,21,61,909.33 Ps. Viz., Rs. 38,61,909.67 Ps. 23. From the aforesaid discussion it is clear that though the order of the AO was erroneous, the same was not prejudicial to the interest of the revenue as no part of the capital gain became taxable because of loss of exemption u/s.11(1A) of the Act. Since the order sought to be revised u/s.263 of the Act was erroneous but not prejudicial to the interest of the revenue, jurisdiction u/s.263 could not have been invoked by the CIT. We hold accordingly and quash the order u/s.26....
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.... income which is applied towards the objects of the trust cannot be subject to tax. I, therefore, delete the addition of Rs. 1,69,65,500/- made by the Assessing Officer. Ground nos. 2 & 3 are allowed." 2.4. The ld. counsel for the assessee contended that the claim of the assessee also gets support from the following decisions:- A. Guruprashad Trust vs DCIT (2005) 93 TTJ (Chd.) 1103 B. DIT vs Girdharilal Shewnarain Tantia Trust (1993) 199 ITR 251 2.5. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the impugned amount was duly disclosed in the income and expenditure account and the expenditure is excess over the income. The total income credited to the account was Rs. 3,29,91,999/- and application towards the object of the trust was Rs. 4,72,02,440/-. Whereas, the Assessing Officer restricted the deduction of income apply towards the object of the trust was to the extent of Rs. 1,60,26,499/-. Even if, we accept the contenti....