9911796707
TMI Blog1985 (9) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to charitable or religious purposes to the extent specified hereunder, namely :- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) ** (b) ** (i) ** (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. This section was inserted by the Finance (No. 2), Act, 1971 but it was given retrospective effect from 1962. Under section 11 income derived from property held under trust only for charitable purpose or for religious purposes is exempt to the extent to which income is applied to such purposes. Where the charitable trust owns certain capital assets and such capital assets are transferred it may result in a capital gain. The requirement of section 11(1A.) would be that this capital gain should also be applied for charitable purposes in order to get the exemption. However, this section which takes place of earlier executive instruction provides that it was not necessary for the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11(1A) were fulfilled in respect of the transactions regarding Orissa Cement Ltd. s shares. According to him, the requirements of that section were satisfied as the newly acquired shares were held as capital asset after the realisation of the sale consideration. He also found that there was no time limit for holding the capital assets. He, therefore, held that capital gain of Rs. 96,607 should be treated as application towards charitable purposes within the meaning of section 11(1A). 5. The learned AAC, however, referred to the comments made in the book Taxation of Charity by Shri M.P. Agrawal and reproduced the following paragraph appearing : Assets acquired out of income allowed as charitable expenses. Saleproceeds comprise cost of an asset (plus profit). Cost would have been incurred in an earlier year. If the asset was acquired out of the funds of the trust, the corresponding amount would have been considered in the year of the acquisition. If the asset constituted an item of charitable expenditure and the investment therein was allowed as application of income to charitable purpose vide Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683 (Guj.), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose and that fiction cannot be extended to other purposes. For this he relied on the decision in the case of CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC). 8. The learned counsel for the assessee also raised an alternative submission and a ground has also been submitted in this regard. He contended that if any capital gains was to be assessed in the hands of the assessee benefit under section 80T of the Act should also be allowed. The depart mental representative has relied on the order of the AAC. 9. In the course of arguments the learned counsel for the assessee has drawn our attention to the submission made before the ITO where it had been stated that the sales consideration of shares of Orissa Cement Ltd. at no point of time were not held as capital asset. Even after resale of these newly acquired shares the sale consideration was reinvested by the trustees in deposits in various companies which were bearing interest. It is also stated that these deposits were also part of the corpus of the trust. 10. The departmental representative relied on the order of the AAC and submitted that the capital asset which is acquired should be held as such by the assessee. 11. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to be entitled to exemption on the entire amount of its income. In order to enable the charitable trusts to change the form of the capital assets held by them and to hold investments which do not disqualify the charitable trust under the provisions of the Act, executive instructions had been issued prior to the insertion of sub section (1A) of section 11 that where the capital gain is utilised in acquiring a new capital asset for the purposes of the trust it would be considered to be in application of the income for the purpose of the trust. This exemption was later on provided on a statutory footing when sub section (1A) was added with retrospective effect from the insertion of the Act. This sub-section provides that in a case where a capital asset is transferred and it results in some capital gain, it is not necessary for the trust to utilise the capital gains by spending it for charitable purposes if the trust utilises the net consideration received on the transfer of the capital asset for acquiring another capital asset to beheld as the corpus of the trust. On doing so the capital gains are deemed to have been applied for charitable or religious purposes and, thus, it is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the capital gains on the first transaction on the ground that the assessee had already got benefit out of it. The learned author of the book which has been relied upon by the AAC also felt that the interpretation given by him could not follow unless an amendment was made in law for this purpose. According to us, this will not be a question of mere clarification but for a specific provision to be made which will depart from the normal meaning of cost of acquisition. The observations in the book may suggest the author s view as to what law should be but we are not concerned with that problem. We are here to consider the law are it stands. The decision of the Gujarat High Court in the case of Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683-would also not result in giving to the provisions a meaning which the AAC has adopted. Each transfer of a capital asset results in a capital gain on consideration of the cost of acquisition and the sale consideration and other relevant facts. It is not possible to telescope various transactions in the manner in which the learned AAC has done. We, therefore, hold that the AAC has erred in holding that on the second set of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to the facts of the case, we find that the inference drawn by the AAC about Rs. 96,607 was not correct. If after transferring a capital asset the sale proceeds are utilised to acquire some other capital assets which are again transferred and the proceeds are held in cash by the charitable trust, it cannot be held that the conditions of section 11(1A) are satisfied. On this issue, therefore, we hold that the AAC erred in giving the finding about the capital gains of Rs. 96,607. The interpretation placed by the ITO was more reasonable but he did not consider all the relevant aspects as we will see below. In this case we had to see that whether the sale consideration of Rs. 1,77,800 was utilised in acquiring capital assets which were held as capital assets up to the end of this year. After the newly acquired shares were again transferred the assessee realised the sale consideration more than the sale consideration realised on the sale of the shares in Orissa Cement Ltd. If this amount of Rs. 1,77,800 out of the sale considerations of the newly acquired capital asset was again utilised in acquiring capital assets, the assessee satisfied the conditions laid down in section 11 (1A). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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