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TMI Blog2010 (9) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of assessee's some lands by the Surat Municipal Corporation (SMC) more so when book value of those lands was negligible (being Rs. 29,700) as compared to total gross assets Rs. 47.5 crores (Rs. 2.79 crores for Nandini Veterinary Hospital and Rs. 44.76 crores for head office). (3)Without prejudice, on the facts and in the circumstances of the case, the departmental authorities erred in holding that the assessee was not entitled to the benefit of exemption under section 11(1A) in respect of the aforesaid long term capital gains. (4)Without prejudice, on the facts and in the circumstances of the case, the quantum of the aforesaid long term capital gains determined by the departmental authorities is erroneous being not in accordance with the letter and spirit of law. (5)The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 2. In addition to this, an additional ground has been raised as under :- (1)Without prejudice to the assessee's claim of Exemption under section 11(1A) and in alternate elaborating ground No. 4 taken in the original Grounds of appeal, on the facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Acquisition Act. (4) Out of the 80 per cent consideration TDS under section 194-I.A- Rs. 2,06,83,577 was deducted and paid by S.M.C. on 31-3-2006. TDS certificate issued by SMC for assessment year 2006-07. However, the trust reserve right to claim it refund in assessment year 2007-08 since the legal compliances as to the Land Acquisition is completed in the year 2006-07 (i.e., assessment year 2007-08). (5) Even if the transfer is considered to have taken place in assessment year 2006-07, even then 20 per cent of the consideration is not received and hence it cannot be applied. The same may be considered in the next following year as per Explanation 2( i) and 2(a) of section 11(1) of the Act. (6) In order to avail the Exemption of Long Term Capital Gains......" 4. On the basis of this note Assessing Officer carried out enquiries and found that following lands were compulsorily acquired by Surat Municipal Corporation (SMC) :- Land at Vadod Sl. No. Old Survey No. New Survey No. Area (sq. mtrs.) 1. 187/199 91 30,900 2. 193 12 25,600 3. 201 187 13,900 4. 9 311 14,200 Total 84,600 Land at Bhestan Sl. No. Old Survey No. New Survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld under trust wholly for charitable or religious purposes." Thus according to the Assessing Officer if the property is not used for the purpose of trust it will not be entitled to avail the benefit in relation to that property. According to the Assessing Officer there are several evidences to prove that property was never held for charitable purposes. They are as under - (1)The said lands were lying in possession of the trust without any specific purpose. (2)The information brochure supplied by the trust itself mentions that most of the lands were not used for the objects of the trust and the land is barren and not fit for cultivation. In fact the lands were lying unused as fallow which was confirmed through statement as well as inspectorial enquiry. The Assessing Officer rejected the assertion on oath by the managing trustee that lands were used for cultivation of fodder and the said brochure did not give correct information. It was old and not updated. (3)The said land was fallow land as proved by the records of the land revenue authorities. The land record of the revenue authorities suggested that except Kharif season the land in question remained fallow. After monsoon some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out its task and activity for creating the stated benefit and reaching the same to the individual or the public, for whom the trust is set up. Any asset which does not fulfil the stated objectives or purposes of the trust, and does not aid or support the activity that the trust is engaged in for the benefit of the individual or the public, cannot be said to be held under trust. There necessarily has to be a direct link and nexus between the asset received as gift or donation or endowment, and the stated objectives and purposes of the trust. In the case of the assessee, the facts which have been discussed above in considerable detail, clearly show that there was no such nexus between the lands received by the assessee as donation, and located at Bhestan and Vadod villages and i.e., looking after the welfare of animals and birds. Therefore, it is held that the Assessing Officer was fully justified in denying the exemption claimed under section 11(1A) of the Income-tax Act of the sum of Rs. 23,04,02,300 the addition of which to the assessee's total income is confirmed." 7. Before us, the ld. AR for the assessee submitted that trust is standing over 100 years and it is being accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11 has been amended, by section 5 of the Finance (No. 2) Act, 1971 by way of insertion of a new sub-section (1A). Under the new sub-section, it has been provided that in a case where a capital asset being property held under trust for charitable or religious purposes is transferred and the whole or any part of the net consideration for the transfer (i.e., full value of the consideration as reduced by the expenditure incurred wholly and exclusively in connection with the transfer) is utilized for acquiring another capital asset to be held as part of the corpus of the trust, the capital gain arising from the transfer will be regarded as having been applied to charitable or religious purposes." This sub-section (1) to section 11 relates to exemption of income arising from the property held under the trust whereas sub-section (1A) relates to exemption from capital gains arising on transfer of capital asset held under the trust. But for both the sub-sections, the common condition is that "property is held under trust for charitable or religious purposes". According to the ld. AR the phrase "property held under the trust" could only be understood to mean 'owning a property', secondly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch inquiry, which is undertaken in the process of making of the assessment order, the nature of evidence adduced or gathered may be in the form of documents of title or grants, entries from the trust register showing whether the trust is registered as a public trust, and as to whether the properties in question are registered as the properties of the trust and other adjudications, having bearing on the title to the property, made by any competent forum. Thus the scope of the inquiry under the Income-tax Act, is wholly different from the scope of the inquiry under the Bombay Public Trusts Act, 1950. When the evidence that may be adduced before the Assessing Officer or gathered by him during the assessment proceedings conclusively shows that the trust is a registered public trust, and that the property from which the income is derived, is property held under trust wholly for charitable or religious purposes, the tax authority would ordinarily have to accept such evidence and proceed to determine what income is derived from such property held under trust and to what extent it is applied to such purposes....." 8. The ld. AR then submitted that it is not necessary that assessee should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified therein. 2. The Board had occasion to examine whether investment of the net consideration in fixed deposit with a bank would be regarded as utilization of the amount of the net consideration for acquiring 'another capital asset' within the meaning of section 11(1A) of the Income-tax Act, 1961. The Board has been advised that investment of the net consideration in fixed deposit with a bank for a period of six months or above would be regarded as utilization of the net consideration for acquiring 'another capital asset' within the meaning of section 11(1A) of the Income-tax Act, 1961. [Instruction No. 883, dated 24-9-1975 [1994] 206 ITR 138 , 147 (Cal.)]." In the alternative ld. AR submitted that in case the exemption is denied then value of the land should be taken as on 1-4-1981 and benefit of indexation should be given. The ld. AR also submitted that the Government can acquire a property held for one public purposes if such acquisition is necessary for another public purposes. He referred to the following two judgments :- (1)Abdul Hussain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust and therefore, loses exemption or application of provisions of section 11(1A). On the other hand, ld. AR for the assessee has made strenuous arguments to impress upon us that land was in fact being used by animals/birds, grass was grown, it catered the need of stray animals as well and, therefore it can be said that it was not used for charitable work. However, we are not impressed with the arguments regarding use or non-use of the land acquired by SMC as in our considered view actual user around the clock or around the year is not relevant for deciding the claim for exemption under section 11(1A). 11. It is not disputed that assessee is a trust of long standing, registered in 1896 and was granted registration under section 12A. Its objects are undisputedly charitable. The ld. CIT(A) has reported some of the objects as under in which no party has any dispute:- "(i )To provide for protection and maintenance of cattle and other animals given to the trust permanently by any person from Gujarat without distinction of caste, creed or religion. (ii )To arrange for food, treatment and medicine of cattle and other animals and weak, disabled and diseased cattle and other animals who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Application No. 2464 of 2010 in Ahmedabad Urban Development Authority v. Dy. DIT (Exemption) pronounced on 22-2-2010 held that once certificate of registration is granted under section 12A, Assessing Officer cannot take stand that the trust is not fulfilling conditions for applicability of sections 11 and 12. In this regard we refer to paras 9 and 10 from that judgment as under :- "9. Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 & 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA of the Act and a certificate is issued granting registration to the trust or institution it is apparent that the same is a document evidencing satisfaction about (1) genuineness of the activities of the trust or institution, (2) about the objects of the trust or institution. Section 12A of the Act stipulates that provisions of sections 11 & 12 shall not apply in relation to income of a trust or an institution unless conditions stipulated therein are fulfilled. Thus granting of registration under section 12AA of the Act denotes, as per legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 12A then benefit of exemption under sections 11 & 12 cannot be denied to the assessee trust subject to conditions laid down under section 13. In the present case the assessing authority and ld. CIT(A) have not pointed out any violation of any provision of section 13, therefore, rejecting the exemption on account of provisions of section 13 here would not arise. 13. Now it has to be seen whether assessee trust after holding certificate of registration under section 12A can be denied exemption available to it under section 11(1A). For the sake of convenience we reproduce section 11(1A) as under :- 11(1A) For the purposes of sub-section (1)- (a )where a capital asset being properly held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilized for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely - (i )where the whole of the net consideration is utilized in acquiring the new capital asset, the whole of such capital gain; (ii )where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in receipt of the income- (a )income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, and where any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b )income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act to the extent to which such income is applied to such purposes in India and where any such income is finally set apart for application to such purposes in India to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c )income derived from property held under trust - (i )created on or after the 1st day of April, 1952 for a charitable purpose which tends to promote international welfare in which India is interested to the extent to which such income is applied to such purposes outside India, and (ii )for charitable or religious purposes, created before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals that sub-section (1) is applicable for providing exemption to income derived from property held for charitable or religious purposes subject to sections 60 to 63. Whereas section 11(1A) deals with gain arising from transfer of capital asset held by a charitable trust. It also provides exemption from capital gains if new capital asset is acquired and held for charitable purposes. Sub-section (5) of section 11 gives the list of capital asset which can be acquired out of net consideration received by the assessee on transfer of property held under the trust. Sub-section (1A) was inserted in section 11 by Finance (No. 2) Act of 1971 with retrospective effect from 1-4-1962 the object and provision of this insertion was explained in the following portion of the Departmental Circular No. 72, dated 6-1-1972 as under :- "73. Under section 11 of the Income-tax Act, income derived from property held under trust for charitable or religious purposes is exempt from income-tax to the extent such income is actually applied to such purposes during the previous itself or within three months next following. As "income " includes "capital gains " a charitable or religious trust would forfeit exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable or religious purposes during the relevant accounting year or within three months immediately following. 75. The question of eliminating the disadvantage to charitable or religious trusts in being obliged to spend away the capital gains arising from the transfer of assets constituting the corpus of the trust instead of adding to the corpus, was considered by Government in 1963 and administrative instructions were issued to the effect that where a charitable or religious trust transferred a capital asset forming part of the corpus of its property solely with a view to acquiring another capital asset for the use and benefit of the trust and utilized the capital gains arising from the transaction in acquiring a new capital asset, the amount of capital gains so utilized should lie regarded as having been applied to the charitable or religious purposes of the trust. These instructions have recently been reiterated. 76. With a view to placing the aforesaid administrative instructions on a legal footing and removing the disadvantage to charitable and religious trusts for the past as also the future, section 11 of the Income-tax Act has been amended by section 5 of the Finance (No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from property held under trust in part only for such purposes. 78. The insertion of new sub-section (1A) in section 11 takes effect retrospectively from 1-4-1962 the date of commencement of the Income-tax Act, 1961, and therefore, places the concession already allowed under executive orders on a legal footing right from the date from which the requirement of application, by charitable or religious trusts, of at least 75 per cent of their income to charitable or religious purposes during the year of accrual of such income was introduced in the income-tax law." Further Instructions were issued by the Government in Instruction No. 883, dated 24-9-1975 as under :- "Section 11(1A) of the Income-tax Act, 1961 - 'Another capital asset' - Scope of the expression, - section 11(1A) of the Income-tax Act, 1961, provides that where a capital asset, being property held under trust wholly for charitable or religious purposes is transferred and the whole or any part of the net consideration is utilized for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1981-82 out of sale proceeds of shares of companies, amounted to acquiring of another capital assets in terms of section 11(1A). Reinvestment in fixed deposits of any duration is permissible - CBDT Circular dated 24-9-1975, declaring that deposits for a period of six months or more could be considered as capital assets for the purpose of section 11(1A), is not in consonance with the general principles of law and it cannot hold the field. Once a deposit is accepted to be an asset, the larger or lesser duration of the term is an immaterial consideration." (7)In DIT (Exemption) v. D.L.F. Qutab Enclave Complex Medical Charitable Trust [2001] 248 ITR 41 Hon'ble Delhi High Court also supported this view when it held as under :- "Section 11 of the Income-tax Act, 1961 deals with income from property held by charitable or religious purposes. Sub-section (1) of section 11 provides that subject to sections 60 to 63 the enumerated incomes shall not be included in the total income of the previous year of the person in receipt of the income. Section 11(1A) deals with the gains arising from the transfer of capital assets held by a charitable trust it states that the capital gains wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment savings certificates/other securities/certificates issued by Central Government under Small Savings Schemes; 2.Deposit in any account with the Post Office Savings Bank; 3.Deposit in any account with a scheduled/co-operative bank; 4.Investment in units of the Unit Trust of India; 5.Investment in any security of the Central/State Government; 6.Investment in debentures whose principal and interest are fully and unconditionally guaranteed by Central/State Government; 7.Investment or deposit in any public sector company (PSC); Shares of PSC may be retained for three years and other investments or deposits till its maturity once PSC ceases to be a PSC; 8.Deposits with or investment in any bonds issued by an approved financial corporation engaged in providing long-term finance for industrial development in India; 9.Deposits with or investment in any bonds issued by an approved public company with main object of carrying on business of providing long-term finance for construction/purchase of houses in India for residential purposes or for urban infrastructure; 10.Investment in immovable property; 11.Deposits with the Industrial Development Bank of India; 12.Any other pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries and it is not material as to whether it is held by the trustees in their names or in the name of another. Thus the lands in question were held under the trust and there is no dispute that objects of the trust were religious and charitable. Meaning of words "held under trust" The trust is a non-corporial body. It is run by persons called trustees for the benefit of persons or for the purposes or objects stated in trust deed. Therefore, a property owned by a non-corporial body like trust is held by trustees for the trust. Therefore, the phrase "held under trust" would only mean property in possession of the trustees but legally owned by the trust. Since the term the property has been interpreted in widest possible terms even the business or the organization itself has been treated as property held under trust. In CWT v. Phirozsha Pestanji [1974] 96 ITR 185 Hon'ble Gujarat High Court has held as under :- "In section 21(1) of the Wealth-tax Act, 1957 the word 'held'; when used in reference to receiver or manager, cannot include the concept of vesting, for it is clear law that the property does not vest in a receiver or manager. The receiver or manager only manages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) of section 11 and Circular No. 72, dated 6-1-1972. 15. Thus the argument of the department that land should be put to use for getting exemption from capital gains is not correct. As we have seen above, the word "wholly" relates to and qualifies the word "purpose". If the trust is established for charitable or religious purpose and there is no other object for which property of the trust is utilized then property of the trust so held and thereafter so transferred can only give rise to income/capital gains which has to be considered within the provisions of section 11(1) and 11(1A) only. The income or capital gains from the property held under the trust can be denied exemption only to the extent the property is assigned or used or held for any non-charitable purpose or other than the objects of the trust. The assignment or use for non-charitable work would be required to be proved from the positive facts and mere non-use or keeping the property idle or passive cannot be interpreted to mean that it was used or assigned to non-charitable work. Since in the present case the department has only alleged non-use for charitable purpose and there is no material on record that the land wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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