2023 (7) TMI 1460 - AT - Income Tax

Exemption u/s 11 - Income from property held for charitable or religious purposes - addition of capital gain on sale of value of two vehicles and a flat - CIT(A) deleted addition - HELD THAT - Assets were purchased prior to 1st April, 2015 i.e. April, 2008. They are forming part of block of asset and if these facts are visualized in the light of second and third example, then it would reveal that the assessee s case falls in this category. The Board has explained the situation as to how the new scheme is to be implemented on number of assets forming a single block. The ld. Assessing Officer has failed to construe the meaning and scope of this concept in the impugned assessment order rather he has not applied his mind and just made the addition. Therefore, ld. CIT(Appeals) has rightly deleted the addition and we do not find any merit in this ground of appeal of the Revenue, it is dismissed. Properties not used for educational purposes - Properties shall be deemed to be in use for the benefit of specified person if such person is using it without charging adequate rent or other compensation. AO has just expressed his apprehension that the nature of property would suggest that these will be used by other person referred to in sub-section (3) of section 13 of the Income Tax Act and these properties would be used without paying rent to the assessee. AO has no where recorded a finding demonstrating the fact that these properties have factually been used by specified persons. The persons who are associated with the Society and because of their position taken undue advantages. Neither any investigation was made towards that issue nor any finding has been recorded. During the course of hearing, assessee drew our attention towards CBDT Circular dated 21st July, 1966 whereby the scope of sections 13(2) and 13(3) were explained and this Circular contemplates that few instances in which property of a Trust or Institution may be taken to be used or applied for the benefit of an excluded person namely house property belonging to the Trust or Institution and used by such excluded person free of rent or at concessional rent. The value of benefit conferred on the excluded person in such cases would be determinable, respectively, with reference to fair rental value of the house property. Thus according to the Department, acquisition of property is not inherently disallowed to a Charitable Institution because it is in the domain of the Charitable Institution to acquire property for furtherance of its charitable activity and those properties are not being used by the Institution but used by some other associated persons on account of their proximity to the Institution by misusing the property, in that case, fair market value of such utilization is to be determined and to that extent benefit will not be granted to the Institution while determining the taxable income. AO made the additions without comprehending the true scope of sections 13(2) and 13(3) of the Income Tax Act. Therefore, the additions are rightly deleted by the ld. CIT(Appeals) and no interference is called for at the end of the Tribunal. Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 99,15,000/- as capital gain on the sale of two vehicles and a flat.
2. Deletion of addition of Rs. 20,13,54,800/- under section 13(3) read with section 13(2) of the Income Tax Act for properties not used for educational purposes.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 99,15,000/- as Capital Gain:
The main grievance of the Revenue is that the CIT(Appeals) erred in deleting the addition of Rs. 99,15,000/-, which was added by the Assessing Officer as capital gain on the sale of two vehicles and a flat. The Assessing Officer contended that since the assessee claimed the cost of acquisition of these assets towards the application of income, the entire sale consideration should be treated as capital gain. The CIT(Appeals) deleted the addition by noting that the assets were part of a block of assets, and depreciation had been claimed on these assets. The CIT(Appeals) relied on the CBDT Circular No. 469 dated 23.09.1986, which explains the concept of block of assets and how capital gains should be computed. The Tribunal upheld the CIT(Appeals) decision, emphasizing that the assessee's case falls within the examples provided in the CBDT Circular, and the Assessing Officer failed to properly apply the block of assets concept. Consequently, the addition of Rs. 99,15,000/- was rightly deleted.

2. Deletion of Addition of Rs. 20,13,54,800/- under Section 13(3) Read with Section 13(2):
The Revenue's second grievance is that the CIT(Appeals) erred in deleting the addition of Rs. 20,13,54,800/- made by the Assessing Officer under section 13(3) read with section 13(2) of the Income Tax Act. The Assessing Officer disallowed the amount on the grounds that the properties in New Delhi, Mumbai, and Goa were not used for educational purposes and were presumed to be used for personal benefit. The CIT(Appeals) found that the properties in Delhi and Mumbai were not put to use in the year under consideration, and the property in Goa was used for adult learning. The CIT(Appeals) noted that the Assessing Officer failed to provide evidence that the properties were used by specified persons without adequate compensation. The Tribunal agreed with the CIT(Appeals), stating that the Assessing Officer did not demonstrate that the properties were used by specified persons or their relatives. The Tribunal also highlighted that the provisions of section 13(2)(b) require determining the fair rental value of the property if used by specified persons, which the Assessing Officer failed to do. Therefore, the addition of Rs. 20,13,54,800/- was rightly deleted by the CIT(Appeals).

Conclusion:
In the result, the appeal of the Revenue is dismissed. The Tribunal upheld the CIT(Appeals) decisions on both issues, finding no merit in the Revenue's contentions. The order was pronounced in the open Court on 14.07.2023.