1982 (4) TMI 99 - AT - Income Tax

Summary

Issues:
1. Whether the assessment passed by the ITO was prejudicial to the interest of the revenue.
2. Whether the assessee had acquired another capital asset as per the provisions of section 11(1A).
3. Whether the investment made by the assessee within the time limit laid down under section 11(1A) was valid.

Analysis:
1. The original assessment of a trust for the assessment year 1976-77 included short-term capital gains on the sale of shares. The Commissioner found that a surplus amount should have been taxed as income 'not applied' under section 263 of the Income-tax Act, 1961. The Commissioner set aside the assessment, stating that the ITO had erroneously taxed a lesser amount. The Commissioner held that the assessee was ineligible for relief under section 11(1A) for the surplus amount. The Tribunal declined to interfere with the Commissioner's order, upholding that the assessee's income from capital gains should have been applied within the specified time to be eligible for exemption under section 11(1A).

2. The assessee contended that the Commissioner erred in holding the assessment prejudicial to the revenue's interest and in determining that the assessee had not acquired another capital asset as required by section 11(1A). The Tribunal noted that the assessee failed to invest the funds from the sale of shares within the previous year relevant to the assessment year. The Tribunal agreed with the Commissioner's decision that the assessee was not entitled to relief under section 11(1A) due to the failure to apply the income within the specified time, as mandated by the law.

3. The Tribunal considered the timeline for investment under section 11(1A) and the option available to the assessee under section 11(2) for applying the income beyond the accounting period. It was argued that the law did not specify a reasonable period for investment. The Tribunal held that the assessee's belief that the law did not allow application of funds beyond the previous year was a misapprehension. Since the assessee did not exercise the option under section 11(2) within the prescribed time, the income from capital gains could not be applied in the subsequent year for exemption under section 11(1A). Therefore, the Tribunal upheld the Commissioner's decision that the assessee was ineligible for relief under section 11(1A for the capital gains earned from the sale of shares. The appeal filed by the assessee was dismissed by the Tribunal.