2018 (6) TMI 1795 - AT - Income Tax

Denial of exemption u/s 11 - donation made to another trust - whether donations for charitable purposes made from sale proceeds of the capital asset is also application of income towards achievement of the objects of the Trust and render it eligible for exemption under Section 11 ? - HELD THAT - We find that the issue before us, is squarely covered in favour of the assessee by the decision of a co-ordinate bench of this Tribunal in the case of Al Ameen Educational Society Vs. DIT (Exemptions) 2012 (11) TMI 346 - ITAT BANGALORE wherein held that if the capital gains / sale proceeds of the capital asset is applied for charitable purposes in keeping with the objects of the assessee trust, not by acquiring a new asset but for other charitable purposes, then there is no reason why it should not be considered as application of income for charitable purpose, thereby enabling the assessee to be eligible for claiming exemption under Section 11 of the Act. Following the aforesaid decision of Al Ameen Educational Society Vs. DIT (Exemptions) (supra), we uphold the decision of the learned CIT (Appeals), rendered at para 12 of the impugned order, that donations made form sale proceeds of the capital asset for charitable purpose in furtherance of the objects of the assessee trust, renders the assessee eligible for exemption under Section 11 of the Act. Consequently, the grounds raised by Revenue are dismissed.

Summary

Issues:
- Appeal against order of Commissioner of Income Tax (Appeals) for Assessment Year 2013-14.
- Eligibility for exemption under Section 11 of the Income Tax Act based on donations made from sale proceeds of a capital asset.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2013-14. The assessee, a religious and charitable society, had filed its return of income declaring NIL income after claiming exemption under Section 11 of the Act. The assessment concluded with a determination of taxable income due to the denial of exemption under Section 11. The assessee appealed the assessment, and the Commissioner of Income Tax (Appeals) allowed partial relief based on the decision of a co-ordinate bench of the Tribunal regarding donations made from the sale proceeds of a capital asset. The Commissioner held that such donations constitute application of income towards the trust's objects, making the assessee eligible for exemption under Section 11. The Revenue challenged this decision before the Tribunal.

Upon hearing the contentions and considering the judicial pronouncement cited, the Tribunal analyzed whether donations made for charitable purposes from the sale proceeds of a capital asset qualify as application of income towards the trust's objectives, thus enabling exemption under Section 11. Citing the decision of a co-ordinate bench in a similar case, the Tribunal upheld the Commissioner's decision that such donations indeed render the assessee eligible for exemption under Section 11. Consequently, the Tribunal dismissed the grounds raised by the Revenue, affirming the eligibility of the assessee for exemption under Section 11 based on the donations made from the sale proceeds of the capital asset.

In conclusion, the Tribunal dismissed the Revenue's appeal for the Assessment Year 2013-14, upholding the decision that donations made from the sale proceeds of a capital asset for charitable purposes aligning with the trust's objectives qualify the assessee for exemption under Section 11 of the Income Tax Act. The judgment was pronounced on June 27, 2018.