TaxTMI 
TaxTMI 
1999 (2) TMI 94
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.... and had a sanctity of Shrine of Udasin sect. (2.) That the learned AO has illegally denied the deduction under s. 11(1A)(a)(ii) of the Act regarding party of net consideration which was utilised in acquiring the new capital assets." 3. The appellant revised grounds of appeal vide application dt. 16th June, 1998:- "(1.) That the learned CIT(A) and the AO have violated the statutory provisions in computing the taxable income under the head 'Capital gains' in the following respects:- (a) that he has not regarded Rs. 20,70,603 as application of income for charitable purposes as provided for in s. 11(1)(a) of the Act. (b) That he has erred in not applying correct legal principles while determining the fair market value of the property as on 1st April, 1974 acquired subsequently by the Government. (c) That he has not allowed deductions in computation of 'capital gains' as provided under s. 48(2) of the Act. (d) That he has misinterpreted and misapplied the provisions of s. 11(1A) of the Act. (2.) That he has also wrongly calculated the amount of exemption available for accumulation of income under s. 11(1)(a) of the Act. (3.) That the learned AO has illegally ....
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.... of 342 sq. yds. and balance area of 1,578 sq. yds. is occupied by other structure. The AO has observed that the property is not in existence and therefore, the same cannot be referred to the Departmental Valuation Officer and the only alternative according to the AO is to adopt rent capitalisation method. The AO has tabulated the rent received for various assessment years and worked average rent at Rs. 35,926. The AO has worked rent for 340 sq. yds. and adopted the same yardstick for remaining 1,578 sq. yds. By this calculation, he has worked out the rent of the entire property at Rs. 201,689 by rent capitalisation method. He has valued the property at Rs. 21,42,950. The AO has made generalistic discussion and finally mentioned that he is estimating property at Rs. 32,00,000 as on 1st April, 1974, Regarding applicability of s. 11(1A), the AO has given following observations: "It is seen that in both the earlier assessment orders a number of deductions have been allowed which were not allowable and similarly a number of deductions were not allowed which were allowable to the assessee under the law. For example, a deduction for the purchase of land and building etc. was allowed whic....
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....nsidering all the relevant facts including the ancient value and the sanctity of the shrine. I am also is agreement with the AO in taking the cost of acquisition as on 1st April, 1974 at Rs. 32 lacs. So far as the computation in respect of exemption is concerned, the stand taken by the learned counsel appears to be justified. The AO has allowed the exemption upto 25 per cent following thereby the decision that there are two limbs of s. 11(1) as per which the exemption is to be allowed in respect of unspent accumulated income of the previous year. The learned AO has applied the provisions of s. 11(1)(a) and which deals with the question of investment of the balance accumulated income which has still not earned exemption under sub-s. (1)(a) of the Act. The relevant portion from the headnote of this decision relating to this further exemption is reproduced hereunder: "Then follows sub-s. (2) which deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-s. (1)(a). So far as that balance of accumulated income is concerned that also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption....
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....ingly. I, therefore, hold that the appellant cannot succeed on this ground. In this result, the appeal is dismissed subject to the relief, if any, as per the directions given above." 7. Against the order passed by the learned CIT(A), the appellant is in appeal before us. The learned counsel of the appellant has pleaded that the AO has not given benefit of Rs. 20,70,609 as an application of income for religious and charitable purpose as provided under s. 11(1A)(a) of the IT Act. The learned counsel pleaded that the appellant purchased and constructed property of Rs. 20,70,609 during the assessment year under consideration. The learned counsel pleaded that this new asset was purchased out of funds received on account of acquisition of property by the Government for Rs. 50,66,300 during the year under consideration that is between 1st April, 1988 to 31st March, 1989. The learned counsel pleaded that both the learned CIT(A) and the AO has ignored this fact even though the AO has admitted that the taxability of capital gains is to be analysed under s. 11(1A) of the IT Act. The learned counsel pleaded that since the amount of Rs. 20,70,609 has been applied for the advancement of re....
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.... chart) Income (receipt of transfer consideration) Capital gain 50,66,300 Less: 25 per cent of above under s. 11(1)(a) 12,66,575 ------------ 37,99,725 Less: Cost price as on 1st April, 1974 Rs. 40 lac. Cost compensation received during the year 40,00,000 x 50,66,300 Total compensation 63,12,666 32,09,735 ------------ 5,89,9....
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....1920 sq. yrds. and area under shops was 342 sq. yrds .. and area under other structure was 1,578 sq. yrds. The other area consists of rooms for the saints, a Mandir, Samadhi of Akhara Mahant, hall for Guru Granth Sahib, open compound consisting of one Beri and one Neem, Langar hall, Puja room and room for saints. The AO presumed that the appellant will get same rent for the remaining portion as he got for the shop complex and worked out an estimated maintainable rent for the entire property at Rs. 2,01,689, after allowing reduction of 15 per cent. The AO valued the property at Rs. 21,42,950. He has, however, taken note of the fact that the shrine is having respectable place in the minds of its followers and therefore the value of the same cannot be measured in terms of money. However, he made a reasonable estimate of Rs. 32 lacs. 12. The AO is admitting that the place was having considerable advantage regarding the historical background of the religious place. There is ample evidence that the place was quite adjacent to Golden Temple. There was a temple with various historic monuments. The rent of the shop is lower than what was prevailing market rent because according to tenant....
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....r the head 'Capital gains' that shall be deemed to be income of previous year in which such transfer took place. All exceptions, exemptions, deductions and benefits are mentioned under various sections, sub-sections and clauses from ss. 45 to 59 of the IT Act. Nowhere in sub-Chapter-'E', it is mentioned that the Capital gains in case of trust property is to be taxed and calculated in a different manner than what is provided in sub Chapter-E. We would like to reproduce s. 11(1A) which is creating confusion in the mind of the AO. The relevant s. 11(1A) is reproduced as follows: (1A) for the purposes of sub-s. (1),- (a) Where a capital asset, being property held under the trust wholly for charitable or religious 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 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 such capital gain; (ii) where only a part of the net consi....
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....iring the new capital asset, the amount of capital gains so utilised would be regarded as having been applied to the charitable or religious purposes of the trust within the meaning of s. 11(1). The Board have decided that the above instructions should continue to be operative notwithstanding the changes made in the schemes of tax exemption of charitable or religious trustee through the Finance Act, 1970." 16. We are, therefore, of the opinion that income under capital gain is to be calculated in accordance with ss. 45 to 59 of the IT Act, 1961. From the facts analysed above, the appellant is entitled for exemption under s. 11(1A). On the factual position, we have given finding that the cost as on 1st April, 1974 is Rs. 38,62,500. The purpose of invoking s. 11(1)(a) is to exclude the income of charitable and religious institution from the total income of the trust. The income to be excluded relates to the income derived from the property held under the trust to the extent such income is applied for the purpose of the trust in India. The Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC)....
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....m any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee. We are of the view that the Tribunal was right in taking the view that the purpose for which the assessee was established was a charitable purpose within the meaning s. 2, cl. (15), and the income of the assessee was exempt from tax under s. 11. The question referred to us in each of these references must, therefore, be answered in favour of the assessee and against the Revenue." "Therefore, for the purpose to fall under the fourth head of "charitable purpose", it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a ....
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....s and charitable purpose, the appellant spent Rs. 20,70,509 on purchase of land and construction work for the temple and Sarai. Further, the appellant has submitted that as admitted by the AO in his order, also applied sum of Rs. 2,61,730, which he was allowed deduction under s. 11(1)(a) for charitable purpose of the trust. The AO and the learned CIT(A) committed a mistake by taking entire receipt of Rs. 50,66,300 as income from the property. The income has to be given a commercial meaning and in terms of commercial sense for sale of property, the benefit of the cost of the property is also to be given. Therefore, under the facts and circumstances of the case, the appellant is entitled for total exemption under s. 11(1)(a) of the IT Act. 17. We will now discuss the scope of s. 11(1A) of the IT Act. The appellant is also entitled for exemption under s. 11(1A). Sec. 11(1A) is attracted in cases where capital asset being property is held under trust for charitable and religious purposes. The facts of the case is that property is held under trust for charitable and religious purposes from historical times. The second condition is that if the asset is transferred and the whole or any....
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....other capital asset, viz., 10 per cent being invested in Bank of India and balance in fixed deposits with the erstwhile purchasers of the capital asset. The provisions of s. 11(1A), were, therefore, fully satisfied on the facts of the present case. As a result of this discussion, therefore, the questions referred for our opinion are answered. The facts and circumstances of the case are squarely applicable in the case of the appellant. 18. The amount receipts are existing in the balance sheet of the appellant and in subsequent year balance sheet clearly shows that the receipts are in the form of asset which are definitely for the charitable and religious purpose of the trust. It is also worthwhile to note for subsequent years also the AO has treated the spending as well as receipt of trust to be fully covered under s. 11(1)(a) of the IT Act. It will, therefore, be illogical to come to a conclusion that during the year under consideration, the appellant is not entitled to the benefit of earlier s. 11(1)(a) or 11(1A). It is also interesting to note that the balance sheet for the subsequent year also revealed that net consideration has totally been invested in constructing the as....
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....ying s. 11(1)(a) was the income earned from the property. During the year under consideration, the income earned from the property is to be taken from the commercial sense. The income earned from the property can never be gross receipt in case of sale of the property but can only be net profit whatever one may call the net receipt. For the tax purpose, we call the same as capital gain. The cost can never be income but cost is to be reduced from the receipts. The gross sale proceeds of the appellant during the year under consideration are only to the tune of Rs. 50,66,300. The cost of the property is much more both from sentimental as well as commercial aspect. The property was compulsorily acquired by the Punjab Government for safety of Golden Temples Complex. The AO has accepted that the cost of property was valuable and worked at Rs. 30 lakhs. We have estimated the same at Rs. 38.62 lakhs. The income from property cannot be more than Rs. 11.38 lakhs. Under no circumstances, it can be more than Rs. 22 lakhs which was admitted to have been spent for religious and charitable purpose. 20. The Hon'ble Supreme Court in the case of J.K. Trust vs. CIT (1957) 32 ITR 535 (SC) has given ....
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....) of the IT Act. Therefore, income of the appellant is exempted from the IT Act. 23. The appellant has also taken ground regarding charging of interest under ss. 234A and 234B of the IT Act. The AO charged interest under s. 234A as well as s. 234B of the IT Act. The appellant took specific ground before the learned CIT(A) and the learned CIT(A) observed that the contention of the appellant that ss. 234A and 234B are not applicable in case of trust is not accepted. The learned CIT(A) observed that the provisions are mandatory and same are attracted in accordance with the law. Aggrieved against the order, passed by the learned CIT(A), the appellant filed an appeal before us. 23.a. The learned counsel of the appellant pleaded that the appellant was having bona fide belief that the income is going to be below taxable limit, therefore, he did not file estimate of advance tax as well as there was delay in filing of the return. The learned counsel relied on the decision of Hon'ble Patna High Court in the case of Ranchi Club Ltd. vs. CIT (1996) 131 CTR (Pat) 368. The learned counsel pleaded that the Hon'ble Patna High Court has held that additional liability to pay interest arises on....