2019 (10) TMI 440 - AT - Income Tax

Exemption u/s 11 - Claim of repayment of loan as application of income - HELD THAT - In the instant appeals it is the case of the AO that the cost of assets acquired out of loan funds have been claimed by the assessee as application of income in the years in which those assets were acquired. In that case if the assessee is allowed to claim exemption again on repayment of loan taken for acquiring the very same asset then the same would result in double exemption for the very same amount which cannot be the intention of the statute. Since the assessee has already claimed exemption towards the cost of asset as application of income in our view the assessee cannot take support of the decision rendered in the case of Janmabhumi Press Trust 1995 (8) TMI 2 - KARNATAKA HIGH COURT to claim exemption on account of repayment of loan taken for acquiring the above said asset. CIT(A) has omitted to consider above said factual aspects and hence we cannot sustain his order passed on this issue. Accordingly we set aside the order passed by Ld CIT(A) in all the three years on this issue and restore the addition made by the AO in all the three years. Sale consideration received on sale of assets - reasoning given by the Assessing officer is that the assessee had claimed entire cost of assets as application of income in the earlier years and hence the sale consideration should be taken as income of the assessee - HELD THAT - We notice that the provisions of sec.11(1A) of the Act prescribe the procedure for assessment of income arising on transfer of Capital asset held under trust wholly for charitable or religious purposes. The provisions of sec.11(1A) has been explained by the co-ordinate bench in the case of Al-Ameen Educational Society vs. DCIT(E) 2012 (11) TMI 346 - ITAT BANGALORE Further the CBDT has also explained the provisions of sec.11(1A) in Circular No.72 dated 06- 01-1972. We notice that the Ld CIT(A) has directed the AO to compute Capital gains arising on sale of capital asset following the decision rendered in the case of Al-Ameen Educational Society (supra). Hence we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue.

Summary

Issues:
1. Claim of repayment of loan as application of income.
2. Assessment of sale consideration received on sale of assets.

Claim of Repayment of Loan as Application of Income:
The appeals filed by the Revenue concern the claim of repayment of loans made during the years as application of income by a public charitable trust. The Assessing Officer (AO) reopened the assessments for the years in question, disallowing the claims of loan repayment as application of income and assessing the sale consideration from the sale of capital assets as income. In the appellate proceedings, the Ld CIT(A) directed the AO to allow the claim of loan repayment as application of income under section 11 of the Act and to compute capital gains from the sale of assets. The first issue revolves around whether the repayment of loan can be considered as application of income. The Ld D.R argued against allowing the claim, citing cases where the cost of capital assets was already allowed as application of income. However, the Ld A.R referred to a High Court decision supporting loan repayment as application of income. The Tribunal analyzed the provisions of section 10(23C) and section 11(1) of the Act, emphasizing that the borrowed funds are not considered income in the hands of the trust. The Tribunal concluded that allowing the claim for loan repayment as application of income would result in double exemption for the same amount, contrary to the statute's intention. Therefore, the Tribunal set aside the Ld CIT(A)'s order and upheld the AO's addition for all three years.

Assessment of Sale Consideration Received on Sale of Assets:
The second issue pertains to the assessment of the entire sale consideration received on the sale of assets as income of the assessee for the relevant assessment years. The AO treated the entire sale consideration as income, considering that the cost of assets had been claimed as application of income in previous years. However, the Ld CIT(A) directed the computation of capital gains as per section 11(1A) of the Act. The Tribunal examined the provisions of section 11(1A) and referred to a specific case to explain the assessment procedure for income arising from the transfer of capital assets held under trust for charitable purposes. The Tribunal found no reason to interfere with the Ld CIT(A)'s decision on this issue, as it aligned with the provisions and relevant case law. Consequently, the appeals of the Revenue for the relevant assessment years were partly allowed or fully allowed as per the Tribunal's analysis and conclusions.

In conclusion, the judgment by the Appellate Tribunal ITAT Bangalore addressed the issues of claiming loan repayment as application of income and assessing sale consideration from asset sales. The detailed analysis considered statutory provisions, case law references, and the intention of the statute to determine the appropriate treatment for these aspects in the context of a public charitable trust's tax assessments.