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2016 (3) TMI 1349 - AT - Income TaxExemption u/s 11(1) denied - capital gain arising from sale of building - sum was utilized otherwise then for acquiring capital assets in contravention of section 11(1A), thus, the assessee was not entitle to exemption of the said amount - application of income for charitable purposes - HELD THAT - 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 ₹ 3,29,91,999/- and application towards the object of the trust was ₹ 4,72,02,440/-. Whereas, the AO restricted the deduction of income apply towards the object of the trust was to the extent of ₹ 1,60,26,499/-. Even if, we accept the contention of the ld. DR to be correct that the impugned amount is income of the assessee trust fact remains that it was applied towards the object of the trust. Our view find supports from the ratio laid down , though on invocation of revisional jurisdiction u/s 263 of the Act, in the case of Al Ameen Educational Society vs DIT 2012 (11) TMI 346 - ITAT BANGALORE wherein, the entire consideration was used to acquired new asset, therefore, there was no difficulty as nothing will be taxable u/s 11(1A)(a)(i) of the Act. The decision and the ratio laid down in CIT vs East India Charitable Trust 1992 (1) TMI 21 - CALCUTTA HIGH COURT further supports the case of the assessee, if the capital gain is applied for charitable purposes of the assessee, not by acquiring a new asset, but for other charitable purposes, then there is no reason why its not be considered as application of income for charitable purposes. - Decided in favour of assessee
Issues Involved:
1. Eligibility for exemption under Section 11(1) of the Income Tax Act. 2. Compliance with Section 11(1A) regarding the utilization of capital gains for acquiring capital assets. 3. Validity of the reassessment notice issued under Section 148. 4. Jurisdiction and correctness of the revision order under Section 263 of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Eligibility for Exemption under Section 11(1): The main contention was whether the application of Rs. 1,69,65,500/- arising from the sale of a building was eligible for exemption under Section 11(1) of the Income Tax Act. The assessee argued that the income was applied for charitable purposes, specifically for educational and medical activities, as supported by the decision in AL Ameen Education Society vs DIT (Exem.) 139 ITD 245 (Bangalore). The Tribunal noted that the assessee, a charitable trust, had applied the income towards its charitable objectives, and thus, the income should be exempt under Section 11(1). 2. Compliance with Section 11(1A): The Revenue argued that the capital gains were not utilized for acquiring new capital assets as required by Section 11(1A). The Tribunal examined the assessee's investments and found that the assessee had invested the sale proceeds in acquiring new capital assets over several financial years. The Tribunal held that the investments made in earlier years should be considered as application of income for charitable purposes, referencing decisions like Trustees of Shri Ramanagar Trust vs. Third ITO 13 ITD 426 (Mum) and Akhara Ghamanda Dass vs. ACIT (2001) 114 Taxman 27 (ASR.)(Mag.) 68 TTJ (Asr.) 244. 3. Validity of the Reassessment Notice under Section 148: The Assessing Officer issued a notice under Section 148, claiming that the net consideration from the sale had not been invested in capital assets, thus necessitating a reassessment. The Tribunal found that the assessee had disclosed the amount in its income and expenditure account and that the income was applied towards the objects of the trust. The reassessment notice was deemed unnecessary as the income was already applied for charitable purposes. 4. Jurisdiction and Correctness of the Revision Order under Section 263: The CIT issued a revision order under Section 263, claiming that the AO's computation of capital gains was erroneous and prejudicial to the interest of revenue. The Tribunal analyzed the provisions of Section 11(1A) and the reasons for their introduction, as explained in CBDT Circular No. 72 dated 6.1.1972. The Tribunal concluded that the AO's order was not erroneous as it was based on a possible view supported by judicial precedents. Moreover, the Tribunal found that the order was not prejudicial to the interest of revenue since the capital gains were applied for charitable purposes, as per the decision in CIT vs East India Charitable Trust 206 ITR 152 (Cal). Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the assessee's application of income towards charitable purposes was in compliance with Sections 11(1) and 11(1A) of the Income Tax Act. The reassessment notice under Section 148 and the revision order under Section 263 were deemed invalid. The Tribunal upheld the decision of the First Appellate Authority, granting exemption to the assessee.
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