2020 (8) TMI 84 - AT - Income Tax

Assessment of trust - Addition of capital gains - Capital gain addition on sale of land by the assessee, as per section 45 r.w.s 2(47) to the extent remaining unutilized for charitable purposes u/s 11(1A) - benefit of utilization for charitable purposes allowed u/s 11 being amount paid to the Government under the agreement - HELD THAT - Role of the assessee in the Tripartite agreement, and the supplementary agreements, was receiving funds arranged for by the State government by getting its land sold through PUDA. The amount remitted to the assessee under the agreement, we have no doubt in holding therefore, was in the nature of grant received from the government Without dealing with the manner of taxation of the grants i.e on accrual or receipt basis, either ways nothing was taxable in the impugned year. As is evident from the facts narrated above, the initial agreement transferring possession of land to PUDA for development and sale and estimating revenue generation of ₹ 183 Crs ,was entered on 30-04-2002. The supplementary agreement, increasing the expected Revenue to be generated from the sale of land and remitted to the assessee, to ₹ 420 Crs was dt 01-07-2011. The second supplementary agreement did not effect any increase in the expected Revenue from sale of land. Even by the concept of taxability on accrual basis the grants did not accrue to the assessee in the impugned year. Further the facts demonstrate that except for an amount of ₹ 30 Crs .which was settled under the second supplementary tripartite agreement during the impugned year Dt.07-08-12,to be paid to the state government, all other amounts were received by the assessee in the preceding years. Therefore even by the concept of taxability on receipt of funds ,no amount was taxable in the impugned year except for ₹ 30 Crs. This amount ,we have noted from the agreement ,was stated to be paid to the state government in compliance with the amended and enlarged objectives of the assessee society for engaging with other institutions in the state for providing health care education and or facilities. The assessee had also provided a utilization certificate to this effect before the CIT(A),considering which he had treated the amount as applied for purposes of charity as per section 11 - DR has neither been able to controvert the aforestated facts nor has pointed any infirmity in the findings of the Ld.CIT(A).Therefore by any concept of taxation of income also, i.e accrual or receipt ,none of the amounts of funds due to or received by the assessee under the Tripartite agreement was taxable in the impugned year. Since we have held the amounts received under the tripartite agreement as being in the nature of grants from the government which did not accrue during the impugned year and not capital gain earned by the assessee, we do not find it relevant to adjudicate the issue raised in point no.(iv) of para 11 above relating to taxability of unutilized capital gains u/s 11 which capital gain was not received by the assessee at all. We hold that no capital gain was earned by the assessee under the tripartite agreement dt.30-04-2002 ,that in fact the assessee had received grants from the government under it, no portion of which was taxable in the impugned year either on receipt or accrual basis. - Decided against revenue.

Issues Involved:
1. Whether the assessee earned any capital gain from the transfer of land under tripartite agreements or if it was in the nature of grants received from the government.
2. Whether the gain/grant accrued during the impugned year.
3. Whether the amount paid to the State Government of Punjab under the Tripartite agreement could be treated as utilized for charitable purposes.
4. Whether any portion of the income by way of capital gains, which was not received during the year, could be subjected to tax for not having been utilized for charitable purposes under Section 11 of the Income Tax Act.

Detailed Analysis:

1. Capital Gain vs. Grants:
The primary issue was whether the assessee earned capital gains from the transfer of land or if the amounts received were grants from the government. The Tribunal examined the tripartite agreement dated 30-04-2002 and the land purchase agreement dated 30-05-2000. It was found that the land was purchased by the government and not the assessee. The tripartite agreement clearly stated that the government purchased the land and handed it over to PUDA for development and sale, with proceeds to be remitted to the assessee society. The Tribunal concluded that the land belonged to the government and not the assessee, thus no capital gain arose to the assessee. The amounts received by the assessee were deemed to be grants from the government.

2. Accrual of Gain/Grant:
The Tribunal noted that the initial agreement transferring possession of the land to PUDA was dated 30-04-2002, and the supplementary agreement increasing the expected revenue to ?420 Crores was dated 01-07-2011. The second supplementary agreement did not affect the expected revenue. Therefore, even by the concept of taxability on an accrual basis, the grants did not accrue to the assessee in the impugned year. The Tribunal also observed that except for an amount of ?30 Crores settled under the second supplementary agreement during the impugned year, all other amounts were received by the assessee in preceding years. Hence, no amount was taxable in the impugned year except for ?30 Crores.

3. Utilization for Charitable Purposes:
The Tribunal examined whether the amount paid to the State Government could be treated as utilized for charitable purposes. The supplementary agreements outlined that the surplus generated from the sale of land was to be transferred to the Punjab Government for providing healthcare facilities in the state, in line with the amended objectives of the assessee society. The assessee provided a utilization certificate indicating that the amount was used for health projects in the state. The Tribunal upheld the CIT(A)'s decision to treat the amount as applied for charitable purposes under Section 11 of the Act, noting no infirmity in the findings.

4. Taxability of Unutilized Capital Gains:
Since the Tribunal held that the amounts received under the tripartite agreement were grants and not capital gains, it found it irrelevant to adjudicate the issue of taxability of unutilized capital gains under Section 11 of the Act. The Tribunal concluded that none of the amounts due to or received by the assessee under the tripartite agreement were taxable in the impugned year, either on an accrual or receipt basis.

Conclusion:
The Tribunal held that no capital gain was earned by the assessee under the tripartite agreement dated 30-04-2002. The amounts received were grants from the government, none of which were taxable in the impugned year. The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed.

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