2020 (8) TMI 167 - AT - Income Tax

Assessment of capital gains of trust after withdrawing exemption u/s 11 - assessee is not eligible for the benefit of section 13 - assessee trust is registered under section 12A - assessee while computing capital gain/loss on sale of mutual funds claimed the benefit of indexation on the cost of acquisition - AO and the CIT (A) rejected assessee s computation of capital loss on sale of mutual funds on the premise that the assessee being charitable trust is not eligible for indexation on cost of acquisition - HELD THAT - It is an admitted fact that the assessee in the impugned assessment year has sold mutual funds and had not applied funds of the trust in accordance with the provisions of section 11 of the Act. The authorities below have rightly denied the benefit of section 13 of the Act to the assessee. AO after withdrawing the benefit of Section 13 of the Act completed the assessment under normal provisions. The assessee while computing capital gain/loss on sale of mutual funds claimed the benefit of indexation on the cost of acquisition. AO and the CIT (A) rejected assessee s computation of capital loss on sale of mutual funds on the premise that the assessee being charitable trust is not eligible for indexation on cost of acquisition. The denial of indexation has caused double whammy to the assessee. The assessee loses the benefit of section 13 and is assessed under normal provisions of the Act. At the same time under normal provisions, the assessee is denied the benefit of indexation. In Director of Income Tax (Exemptions) vs. Shardaben Bhagubhai Mafatlal Public Charitable Trust 2000 (9) TMI 45 - BOMBAY HIGH COURT in a somewhat similar case, where the trust had made investments in violation of the provisions of section 11(5) and was denied the benefit of section 13; the assessee s claim of deduction under section 80L was also denied by the Revenue. Hon ble High Court following the judgement rendered in the case of CIT v. Marsons Beneficiary Trust 1990 (7) TMI 37 - BOMBAY HIGH COURT upheld the decision of Tribunal in directing the Revenue to make assessment by treating the assessee as an individual. Thus we hold that while completing assessment under normal provisions of the Act, the assessee should be treated as individual. Since, benefit of section 13 has been withdrawn from the assessee, the benefit of indexation while computing capital gain/loss should be allowed. Benefit of carry forward of earlier year deficit and set off against current year income - Since assessment is made under regular provisions, the assessee is allowed to carry forward deficit of earlier years and set off against current year income, in accordance with the provisions of the Act. The ground No.3 of the appeal is allowed.

Summary

Issues:
1. Denial of benefit of indexation on sale of long term investments
2. Denial of set-off of deficit of earlier years against current year's income

Analysis:

1. The appellant, a charitable trust, appealed against the CIT (A)'s order for the assessment year 2013-14, challenging the enhancement of taxable income and denial of indexation on the sale of long term investments. The appellant sold mutual funds resulting in a long term capital loss, but the benefit of indexation was disallowed by the Assessing Officer. The appellant argued that as the assessment was made under regular provisions, indexation should be allowed. Citing a Bombay High Court decision, the appellant contended that despite the withdrawal of section 13 benefit, indexation should still be granted. The Tribunal agreed, treating the appellant as an individual for assessment purposes and allowing indexation, thus partly allowing the appeal on this ground.

2. The Department contended that the appellant, by violating section 11(5) provisions, was ineligible for section 13 benefits. The Assessing Officer, after withdrawing section 13 benefits, assessed the appellant under normal provisions, denying indexation. The Tribunal, referring to a Bombay High Court decision, held that the appellant should be treated as an individual for assessment under normal provisions. Consequently, the Tribunal allowed the carry forward of earlier year deficits and set off against the current year's income, in line with the Act. Thus, the appeal was partly allowed on this ground.

3. The Tribunal dismissed the first ground of appeal as an alternative claim was allowed, and the fourth ground was considered general. The judgment was pronounced beyond the usual 90-day period due to the COVID-19 lockdown, following a pragmatic approach in interpreting time limits for order pronouncements. The appeal was partly allowed, with the order pronounced on July 16, 2020, under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962.