2015 (9) TMI 1352 - AT - Income Tax

Exemption u/s 11 - application of capital gains arising out of disposal of investments - acquisition of new capital assets (Fixed Deposits) which was not existing on the last day of the previous year - Fixed Deposits got matured before 31st March - Held that - There is no condition that capital asset should be held till the end of the financial year. We are not inclined to accept the interpretation placed by the ld. CIT(Appeals) that the term so held implies that the capital asset which was acquired out of the net sale consideration should be held in that form till the end of the financial year. We, accordingly, set aside the order of ld. CIT(Appeals). Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of Sec. 10(23C)(vi) and Sec. 11 for exemption of income.
2. Application of Sec. 11(1A) regarding reinvestment in capital assets for charitable purposes.
3. Requirement of holding capital asset till the end of the financial year under Sec. 11(1A).

Analysis:

Issue 1 - Interpretation of Sec. 10(23C)(vi) and Sec. 11:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2007-08. The assessee contended that its income was exempt under Sec. 10(23C)(vi) and thus, Sec. 11 should not have been applied. However, since the approval for exemption under Sec. 10(23C)(vi) was pending, the Assessing Officer considered the income under Sec. 11. The rejection of the exemption application by the competent authority led to the dismissal of this ground by the Tribunal.

Issue 2 - Application of Sec. 11(1A) for reinvestment:
The main issue revolved around the application of Sec. 11(1A) concerning the reinvestment of capital gains in acquiring other capital assets for charitable purposes. The assessee disposed of investments, generated capital gains, and reinvested the proceeds in other capital assets held for charitable purposes. The Assessing Officer accepted part of the claim but denied the part where reinvestment was not held as a capital asset till the end of the financial year. The Tribunal analyzed the provisions of Sec. 11(1A) and concluded that there was no requirement for the capital asset to be held till the end of the financial year. The Tribunal set aside the order of the Commissioner and allowed the grounds related to reinvestment under Sec. 11(1A).

Issue 3 - Holding period requirement under Sec. 11(1A):
The Assessing Officer's plea of holding investments till the end of the financial year was accepted by the Commissioner but was found to be incorrect by the Tribunal. The Tribunal clarified that the provisions of Sec. 11(1A) do not mandate holding the capital asset in the same form till the end of the financial year. Therefore, the Tribunal allowed the appeal partly, emphasizing that the capital gain arising from reinvestment should be deemed as applied to charitable purposes without the holding period requirement.

In conclusion, the Tribunal's judgment clarified the interpretation of Sec. 10(23C)(vi) and Sec. 11, addressed the application of Sec. 11(1A) for reinvestment in capital assets for charitable purposes, and ruled against the requirement of holding the capital asset till the end of the financial year under Sec. 11(1A). The appeal was partly allowed based on these considerations.