1984 (11) TMI 108 - AT - Income Tax

Summary

Issues:
1. Interpretation of Section 11(1A) of the Income Tax Act, 1961 regarding capital gains arising from the transfer of property held under trust for charitable purposes.
2. Application of Instruction No. 883 issued by the Board in determining whether investment in fixed deposits qualifies as acquiring another capital asset for charitable purposes.

Detailed Analysis:
1. The judgment deals with an appeal by a Charitable Trust assessed through trustees for the assessment year 1977-78, concerning the capital gains from the sale of lands. The issue revolved around whether investing the net consideration in fixed deposits with Maharashtra Transport Corporation qualified as acquiring another capital asset for charitable purposes under Section 11(1A) of the Income Tax Act, 1961. The Income Tax Officer (ITO) rejected the contention that the fixed deposit constituted a capital asset, thus disallowing the claim for exemption under Section 11(1A).

2. The attention was drawn to Instruction No. 883 issued by the Board, which stated that investing the net consideration in fixed deposits with a bank would be considered as acquiring another capital asset under Section 11(1A). However, the ITO argued that this instruction did not apply to fixed deposits with entities other than banks, such as State Road Transport Corporation. The Appellate Authority held that the fixed deposit in the corporation did not qualify as a capital asset under Section 11(1A), thereby upholding the ITO's decision.

3. The Trust raised two grounds in the appeal, asserting that the fixed deposit with the corporation should be deemed as acquiring another capital asset for charitable purposes. The Appellate Authority rejected this argument, emphasizing that the fixed deposit did not meet the definition of a capital asset. Additionally, the Authority granted an alternate relief under Section 11(2) of the Act based on certain Tribunal decisions, allowing accumulation of the capital gains amount.

4. The Trust further appealed to the Appellate Tribunal, contending that the fixed deposit with the corporation should be considered a capital asset under Section 11(1A). The Tribunal analyzed the provisions of Section 11(1A) and the definition of capital asset under Section 2(14), concluding that the fixed deposit did not constitute a capital asset eligible for exemption. The Tribunal also clarified that Instruction No. 883 applied specifically to fixed deposits with banks and not other entities, affirming the lower authorities' decision to deny the exemption under Section 11(1A).

5. Ultimately, the Tribunal dismissed the appeal, ruling that the investment in fixed deposit with the corporation did not amount to acquiring another capital asset for charitable purposes as required by Section 11(1A). The Trust's claim for exemption under this section was denied, but the alternate relief granted under Section 11(2) by the Appellate Authority was upheld.