2016 (9) TMI 1570

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....the previous year the assessee sold its property and the Long Term Capital Gains on sale of the aforesaid property was computed by assessee at Rs.83,42,447/-. The computation of total income made by the assessee for assessment year 2010- 11 was as follows:- Computation of total income & tax liability AY 2010-11       Income from capital gain       Long term capital gain       Sales proceeds   13,998,236.00   Less: index cost of acquisition       A (index : 447) 60,981     B (index: 426) 124,026  (185,007.00)   Less: cost of improvement   (5,470,78....

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....ssed to tax in the hands of the assessee. The assessee placed reliance on the decision of ITAT Bangalore Bench in the case of Al Ameen Education Society vs. DIT(E) Bangalore (2012) 26 taxmann.com 250 (Bangalore), wherein it was held that capital gains or sale of assets charitable trust if they are applied for charitable purpose cannot be brought to tax. 5. The AO, however, rejected the claim of assessee and held as follows:- "Conclusion:- A combined reading of the provisions of section 11(1A) as well as Board's Circular No. 72 of 1972 and understanding of the cited case laws makes it abundantly clear that the assessee has to utilize the net consideration on the sale of a capital asset for acquiring another fresh capital....

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....ff to    1,38,90,600/-" 7. On appeal by the assessee Ld. CIT(A) held that assessee was entitled to exempt u/s 11(1) of the Act as it applied the capital gains for charitable purpose. The following relevant observation of Ld. CIT(A) reproduced below:- "3.5 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submissions of the assessee. There is no dispute that the assessee is a charitable society and has sold a landed property and the income/capital gain has arisen to the assessee which is required to be applied for charitable purposes as provided u/s 11(1)(a). The provisions of section 11(1)(a) is a basic provision for the application of the money for the....

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....essee is eligible for exemption u/s 11 and accordingly the same is allowed with all the consequential benefit including the deduction of Rs. 54,70,782/-" 8. Aggrieved by the order of Ld. CIT(A) the Revenue has preferred this present appeal before the Tribunal. 9. We have heard rival submissions. The Ld. DR relied on the order of AO and Ld. Counsel for the assessee relied on the order of Ld. CIT(A). 10. We have given a careful consideration to the rival submissions. A charitable trust can spend away the proceeds of the capital gain on sale of the capital assets in the following modes - A It can apply proceeds to charitable purposes as was allowed prior to insertion of Section 11 (1A) of the Actand as is allowed even after i....

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....x relief and removing certain anomalies and practical difficulties. Thus Section 11(1A) of the Act does not place any restriction but it is enlarging the area of utilization. The Assessee trust has acquired land being capital asset for charitable purpose but due to abnormal increase in value due to establishment of Heart and Eye Hospital by group trust, it sold the capital assets and applied the proceeds by way of donation to group trust which is running ear and Eye Hospital. The trust is not allowed to do any business by its rules and regulations and the trust has not carried out any business and as such surplus on sale of land is not business income but is capital gain. 12. As regards Land Development expenses the AO has proceeded o....