2014 (11) TMI 395 - AT - Income Tax

Capital gain on sale of property in the hands of charitable society Application of provisions of section 50C Held that - The assessee is a charitable society and is registered u/s 12A of the Act CIT(A) was rightly of the view that section 11(1A) of the Act which lays down a complete system of taxability of capital gains in respect of an institution approved by the CIT u/s 12A of the Act is a complete code - The provisions of section 50C create a limited fiction to the effect that the full Value of consideration shall be substituted in the provisions of section 48 by the amount taken by the sub-registrar for registration purposes - the fiction contained in section 50C could be applied only for the purpose of computation of capital gains u/s 48 and not beyond the provision it cannot be applied for the purpose of calculating the gain u/s 11(1A) - what is relevant for the purpose of section 11(1A) is the reinvestment of the net amount actually realized and not any notional amount as may be adopted by virtue of sec. 50C. Heads of income u/s 14 have no relevance and question of allowing statutory deductions will not arise - The income contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable in view of the above judgments - Assessment of Trusts is a separate code in itself once an institution has been granted registration u/s 12A - the income occurring in the Act for the purpose of a Trust should be considered what is available in the hands of the assessee i.e. TRUST subject to an adjustment of any expenses extraneous to the trust - Section 11(1A) in itself is a separate specific section which governs the overall taxability of capital gains in a trust and being a specific section it shall prevail over section 50C which is a general section and does not start with a non-obstante clause - In the case of a Trust and for the purpose of Sec. 54F where question of utilization of the funds in case of sale of an asset arises it would be the available funds with the assessee and not the deemed income - This is on the ground that what is, not available with the assessee can never be invested - assessee has rightly computed income of the year and Sec. 50C of the Act has no application to the facts of the case thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961, to a charitable society registered under Section 12A.
2. Interpretation and precedence of Section 11(1A) over Section 50C in the context of capital gains for charitable trusts.

Detailed Analysis:

1. Applicability of Section 50C to a Charitable Society Registered under Section 12A:

The Revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 43,78,588/- made by the Assessing Officer (AO) on account of capital gain from the sale of property, invoking Section 50C of the Income Tax Act, 1961. The AO computed the capital gain based on the value adopted by stamp duty authorities for stamp duty purposes, which was higher than the actual sale consideration.

The assessee, a society registered under Section 12A, contended that Section 50C does not apply to charitable trusts. The Tribunal, in previous cases such as ACIT vs. Shri. Dwarikadhish Temple Trust, held that if the entire sale consideration is reinvested in another capital asset, the provisions of Section 50C should not be invoked.

2. Interpretation and Precedence of Section 11(1A) Over Section 50C:

The CIT(A) adjudicated that Section 11(1A) of the Act, which governs the taxability of capital gains for institutions approved under Section 12A, is a complete code. The CIT(A) referenced judicial precedents and legal provisions to conclude that the specific provisions of Section 11(1A) override the general provisions of Section 50C.

The Tribunal reiterated that Section 11(1A) provides a specific mechanism for computing capital gains for charitable trusts. If the net consideration from the transfer of a capital asset is utilized for acquiring a new capital asset, the entire capital gain is exempt. The Tribunal noted that Section 50C is a general provision and does not contain a non-obstante clause, thus it does not override the specific provisions of Section 11(1A).

The CIT(A) and Tribunal both emphasized that the term "net consideration" under Section 11(1A) is defined independently and does not reference the valuation methods under Section 50C. The Tribunal upheld that the specific provisions for charitable trusts under Section 11(1A) should prevail, and the AO's application of Section 50C was incorrect.

The Tribunal also highlighted that the AO did not challenge the fact that the sale proceeds were utilized for investment in FDRs within the prescribed time, which aligns with the requirements under Section 11(1A).

Conclusion:

The Tribunal confirmed the CIT(A)'s order, stating that the CIT(A) adjudicated the issue in accordance with the law. The appeal by the Revenue was dismissed, affirming that Section 50C does not apply to charitable trusts registered under Section 12A when the net consideration is reinvested in another capital asset as per Section 11(1A).

Result:

The appeal of the Revenue stands dismissed, and the order of the CIT(A) is confirmed.