TaxTMI 
TaxTMI 
2022 (2) TMI 45
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....ion in the light of the proviso to Section 11(1A) of the Act where a charitable or religious trust transferring a capital asset solely with a view to acquiring another capital asset for the use and benefit of the trust and utilized the capital gains arising from the transaction in acquiring a new capital asset, the amount of capital so utilized should be regarded as having been applied to the charitable or religious purpose of the trust? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the conclusion drawn by assessing officer is not correct when the proviso of Section 11(1A) specifically provided for the condition under which such income are exempt from taxation. The proviso of Section 11(1A) commences with the words "for the purpose of sub section (1)" thereby leaving no room for Section 11(1) to operate in the absence of the conditions stipulated under Section 11(1)(a) not being fulfilled? 3. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that inter-trust donation out of sale proceeds of lands is application of income of the trust, not appreciating th....
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....f Income Tax (Exemptions), reported in (2012) 26 Taxman 25, which was challenged by the Revenue before this Court in ITA.No.78/2013 and the same came to be dismissed relying on the Circular issued by the CBDT. Learned counsel thus argued that Explanation to Section 11(2) do prohibit inter-trust donations out of the sale proceeds of the immovable property of the charitable trust. This aspect having not been properly appreciated by the Tribunal, the substantial questions of law raised herein require to be answered in favour of the Revenue and against the assessee. 7. Learned Senior Counsel Sri A.Shankar, who is appointed by this Court as an Amicus Curiae has justified the order of the Tribunal. Referring to the Circular Instructions of CBDT in Circular No.52, dated 30.12.1970, Circular No.72, dated 06.11.1972 with explanatory notes to the Finance Act, 1971, Circular No.8/2002 dated 27.08.2002 with the explanatory notes to the Finance Act, 2002. Leaned Senior Counsel submitted that the legislature has given statutory force to the circular instructions. 8. It was submitted that in order to give effect to Section 11(1A), inasmuch as investing the sale proceeds of a charitable inst....
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....ssessee - charitable trust to another charitable trust, cannot be construed as inadmissible under Section 11(2) read with Explanation thereof. In this regard, learned counsel submitted that exemptions claimed by the assessee is relating to the donations made from the income of the current year, wherein the capital asset was sold and such capital gain would certainly attract Section 2(24)(vi) of the Act to constitute 'income' for the purposes of the Income Tax Act. These aspects having been considered by the Tribunal in the judgment of Al Ameen Educational Society, supra, the Tribunal has rightly decided the issue in favour of the assessee and dismissal of the appeal filed against the said order for want of monetary limits could not be considered as an opportunity for the department to pursue the issue against the assessee herein, more particularly, when the substantial question of law is not at all applicable to the facts of the present case. Thus, the learned counsel submitted that substantial question of law No.3 has no relevance to the facts of the present case and no adjudication on the said substantial question of law is required by this Hon'ble Court. 10. We have carefully....
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....h is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. 11. A comprehensive reading of Section 11(1) with Section 11(1A) would make it clear that Section 11(1A) has been inserted for the purpose of sub-section (1). Interpretation given by the assessing officer on the phrase "for the purpose of sub-section (1)" is wholly unsustainable for the reason that Section 11(1)(a) contemplates that the income derived from the property held under trust wholly for charitable or religious purpose to the extent to which such income is applied to such purposes in India, which is the first limb of Section 11(1)(a) and is relevant for deciding the issue on hand, would necessarily indicate that such income which has been derived from the sale proceeds of the ....
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....f it during the relevant previous year, in order to be entitled to exemption on the entire amount of its income. In this connection, a question was raised during the third meeting on the Direct Taxes Advisory Committee whether the capital gains arising to a trust from the sale of a capital asset belonging to it would be regarded as having been applied for the purposes of the trust, if the trust invested the amount received from the sale of the capital asset, including the capital gains realized, in acquiring another capital asset for the trust. This point has been considered and it has been decided that where a religious or charitable trust transfers a capital asset forming part of the corpus of its property solely with a view to acquiring another capital asset for the use and benefit of the trust and utilizes the capital gains arising from the transaction in acquiring the new capital asset, the amount of capital gain so utilized should be regarded as having been applied for the religious or charitable purposes of the trust within the meaning of section 11(1)." 13. Paragraph 76 of Circular No.52 indicates that with a view to placing the aforesaid administrative instructions on a....
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....ure intended the capital gain arising from such transfer i.e., transfer of capital asset by the charitable trust and the sale proceeds utizlied for acquiring another capital asset shall be deemed to have been applied to charitable and religious purposes to the extent specified thereunder. A legal fiction has been created by Section 11(1A) to consider such transfer of capital asset and the investment of sale proceeds for acquiring another capital asset to be so held by the Trust as applied to charitable or religious purposes under Section 11(1)(a). At any stretch of imagination, this legal fiction created under Section 11(1A) cannot be considered as a proviso to carve out an exception to the main provision. It is in the background of the circular instructions, referred to supra, in order to give statutory force, this provision has been inserted. Thus, we are of the considered view that capital asset transferred by the charitable trust and utilized for acquiring another capital asset would alone cannot be the criteria for granting exemption under Section 11(1A) or in other words, no denial could be made if the sale proceeds are transferred to another charitable trust. Such inter-se t....