2016 (9) TMI 1570 - AT - Income Tax

Exemption u/s 11 - property sold/asset sold were donated to the other public charitable trust/institutions - AO made the addition under capital gain - as per assessee income donated resulted into application of income liable for exemption under Section 11 - HELD THAT - As per insertion of Sec.11(1A) of the Act, option of charitable trust to apply sale proceeds for application to charitable or religious purpose including donation to another charitable trust has not been taken away but rather one more avenue has been opened that is investment in new capital asset to be treated as deemed application to charitable or religious purpose. The CBDT in Circular No.72 dated 6th January, 1972 has explained the legislative intent behind insertion of Sec.11(1A) of the Act as a measuring for grating tax relief and removing certain anomalies and practical difficulties. 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. Land Development expenses disallowance - AO has proceeded on a complete wrong footing. It is not true that most of the land development expenses have been incurred after the sale of land. Rather expenses were incurred prior to sale and payment was made after realization from sale of land. The AO s note that there is no justification of fencing of land already sold by the assessee trust after sale of a land is not true rather by fencing land was made fit for sale - there is no reason to disallow land development expenses. Indexation for land sold should be allowed as contended earlier this is capital gain and not business income. Donation paid to Brahmanand Sewa Sadan should be allowed as application of income of trust for charitable purpose as - a) Capital gains are part of income and can be applied for charitable purpose including donation to another charitable trust. b) Done Brahmanand Sewa Sadan is running Heart Hospital in association with Dr. Devi Shetty the renowned heart surgeon and Eye Hospital with renowned eye surgeon, Dr. Parth Biswas. c) Audited accounts of Brahmanand Sewa Sadan are being filed along with Nil Income Tax assessment order. Referring to legal position as explained in the decision of the ITAT Bangalore in the case of Al Ameen Education Socieity 2012 (11) TMI 346 - ITAT BANGALORE we are of the view that the CIT(A) was justified in allowing relief to the Assessee. - Decided in favour of assessee.

Summary

Issues:
1. Appeal by the Revenue against the order of Commissioner of Income Tax (Appeals) relating to assessment year 2010-11.
2. Claim by the assessee that its total income is NIL due to application of income for charitable purpose.
3. Dispute regarding the capital gains on the sale of property and the application of income by the assessee for charitable purpose.
4. Assessing Officer's rejection of the claim by the assessee and computation of total income.
5. Ld. CIT(A) holding that the assessee was entitled to exemption under section 11(1) of the Income Tax Act.
6. Appeal by the Revenue against the order of Ld. CIT(A) before the Tribunal.

Analysis:

1. The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The assessee, a registered society, claimed its total income as NIL by applying income for charitable purposes.

2. The dispute arose over the capital gains from the sale of property by the assessee and its application for charitable purposes. The Assessing Officer contended that the capital gains should be taxed unless reinvested in another capital asset as per Sec.11(1A) of the Act.

3. The Assessing Officer rejected the assessee's claim, emphasizing the need to reinvest the sale proceeds in a new capital asset to avoid taxation. The AO highlighted the lack of substantial charitable activities by the assessee apart from a significant donation.

4. The Assessing Officer computed the total income of the assessee, including income from business and other sources, leading to a taxable income determination.

5. On appeal, the Ld. CIT(A) ruled in favor of the assessee, allowing exemption under section 11(1) of the Act for applying the capital gains to charitable purposes. The Ld. CIT(A) emphasized the importance of applying income for charitable purposes and allowed relevant deductions.

6. The Revenue challenged the Ld. CIT(A)'s decision before the Tribunal. After considering the arguments, the Tribunal upheld the Ld. CIT(A)'s decision, stating that the assessee's actions were in line with the law and dismissing the Revenue's appeal.

This detailed analysis covers the issues involved in the legal judgment, including the contentions of the Revenue, the assessee's claims, the decisions of the Assessing Officer, Ld. CIT(A), and the Tribunal, providing a comprehensive overview of the case and its resolution.