1986 (3) TMI 116 - AT - Income Tax

Summary

Issues:
1. Entitlement to exemption under section 11 of the Income-tax Act, 1961.
2. Taxability of capital gains under section 11(1A).

Entitlement to Exemption under Section 11:
The appeal was filed by the department against the Commissioner (Appeals) order concerning the assessment year 1981-82. The primary issue was whether the assessee-trust was entitled to exemption under section 11 of the Income-tax Act. The Income Tax Officer (ITO) contended that the assessee lost the exemption under section 11 due to investments in a company where substantial contributors had interests, invoking section 13(2)(h). The ITO's decision was based on the belief that the substantial contributors had interests in the company. However, the Commissioner (Appeals) found that the assessee was not hit by the provisions of section 13, as the conditions under section 13 were not cumulatively satisfied during the relevant periods. The Tribunal concurred with the Commissioner (Appeals) and held that the assessee-trust retained its exemption under section 11 as it was not affected by section 13.

Taxability of Capital Gains under Section 11(1A):
Another ground of appeal was the taxability of capital gains of Rs. 4,13,000 earned by the assessee. The ITO contended that the assessee forfeited the exemption under section 11, thereby disallowing the exemption under section 11(1A) for capital gains. However, the Commissioner (Appeals) disagreed and directed the ITO to treat both income and capital gains of the assessee as exempt from tax. The Tribunal upheld the Commissioner (Appeals) decision, stating that since the assessee was not hit by section 13, it was entitled to the benefit of section 11(1A) for the capital gains realized and invested in a fixed deposit as per CBDT instruction.

In conclusion, the Tribunal dismissed the appeal, affirming the Commissioner (Appeals) decision based on the findings that the assessee-trust retained its exemption under section 11 and was entitled to the benefit of section 11(1A) for the capital gains. The judgment emphasized the importance of meeting all conditions under section 13 to impact the exemption under section 11.