Shri Surat Panjarapole Trust, Surat V. The ACIT.,Circle-3, Surat

ITA 1306/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9772 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Charitable institution; Question of law; Cost of acquisition; Benefit of exemption; TDS; Capital Gains
• Section: 2(14); 12A; 12AA; 205; 201; 11(1A); 63; 28; 11; 139

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM SHRI SURAT PANJARAPOLE TRUST, SURAT. PAN AABTS 4726L VS. ASSTT. CIT, CIRCLE-3, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. N. SOPARKAR, AR RESPONDENT BY:- SHRI ALOK JOHRI, CIT,DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES ERRED IN REJECTING ASSESSE ES CLAIM FOR EXEMPTION IN RESPECT OF ONLY ONE ITEM (VIZ. LONG TE RM CAPITAL GAINS) EVEN AFTER ACCEPTING RATHER TACITLY THE EXIS TENCE AND GENUINENESS OF THE ACTIVITIES OF THE TRUST WHICH RE SULTED IN ACCEPTANCE OF ASSESSEES CLAIM FOR EXEMPTION OF GRO SS INCOME OF MORE THAN THREE CRORES OF RUPEES (BEING RS.264.4 2 LACS IN HEAD OFFICE AND RS.40.28 LACS IN NANDINI VETERINARY HOSPITAL) (2) WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN RE JECTING ASSESSEES CLAIM FOR EXEMPTION FROM TAX ON LONG TER M CAPITAL GAINS WHICH AROSE ON ACQUISITION OF ASSESSEES SOME LANDS BY THE SURAT MUNICIPAL CORPORATION (SMC) MORE SO WHEN BOOK VALUE OF THOSE LANDS WAS NEGLIGIBLE (BEING RS.29,70 0) 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). ITA NO.1306/AHD/2010 ASST. YEAR :2007-08 ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 2 (3) WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES ERRED IN HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF EXEMPTI ON U/S 11(1A) IN RESPECT OF THE AFORESAID LONG TERM CAPITAL GAINS . (4) WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE QUANTUM OF THE AFORESAID LONG TERM CAPITA L GAINS DETERMINED BY THE DEPARTMENTAL AUTHORITIES IS ERRON EOUS 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 DU RING THE COURSE OF HEARING OF THE APPEAL. 2. IN ADDITION TO THIS, AN ADDITIONAL GROUND HAS BE EN RAISED AS UNDER :- (1) WITHOUT PREJUDICE TO THE ASSESSEES CLAIM OF EXEMPT ION U/S 11(1A) AND IN ALTERNATE ELABORATING GROUND NO.4 TAK EN IN THE ORIGINAL GROUNDS OF APPEAL, ON THE FACTS, CIRCUMSTA NCES OF THE CASE AND IN LAW THE LD. AO HAS ERRED IN COMPUTING T HE LONG TERM CAPITAL GAIN AT RS.23,04,02,300/- AND CIT(A) CONFIR MING THE SAID LONG TERM CAPITAL GAIN WITHOUT GRANTING DEDUCT ION ON ACCOUNT OF INDEXED COST OF ACQUISITION WITH REFEREN CE TO THE MARKET VALUE OF THE SAID LAND AS ON 1.4.1981, AS PR OVIDED IN SECTION 48 OF THE INCOME-TAX ACT, 1961. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A TRU ST FOR THE BENEFIT OF CATTLE AND OTHER ANIMALS. IT IS ALSO RUNNING A VETE RINARY HOSPITAL IN THE NAME OF NANDINI VETERINARY HOSPITAL (NVH IN SHORT ) FOR WHICH SEPARATE ACCOUNTS ARE MAINTAINED AND THE SURPLUS OR DEFICIT OF INCOME AND EXPENDITURE ACCOUNT OF NVH IS TAKEN TO THE HEAD OF FICE. THE TRUST DEED IS DATED 21.10.1896 AND SINCE THEN IT HAS CLAIMED T O CARRY ON CHARITABLE ACTIVITIES IN RESPECT OF CATTLE AND ANIMALS. THE AO MENTIONS THAT ASSESSEE FILED ITS RETURN OF INCOME DECLARING NIL INCOME I.E . CLAIMING ENTIRE SURPLUS AS EXEMPT. THE AO ALSO MENTIONED THAT THE TRUST IS RUNNING A VETERINARY HOSPITAL NAMED NVH AND IS MAINTAINING GAUSHALAS AT VARIOUS PLACES. IT IS REGISTERED UNDER SECTION 12A OF THE ACT. HE H AS OBTAINED A COPY OF ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 3 THE CERTIFICATE, VERIFIED IT AND PLACED ON RECORD. THE ASSESSEES INCOME IS FROM DONATION AND INTEREST. IN THE RETURN OF INCOME FILED ASSESSEE HAS APPENDED A NOTE AS UNDER :- (B) INVESTMENTS TO AVAIL EXEMPTION U/S 11- AGGREGATE CONSIDERATION 492)(A) SUPRA 23,04,32,000 LESS-20% TO BE RECEIVED FROM S.M.C. 4,60,86,400 PER ACQUISITION ORDERS BALANCE 18,43,45,600 LESS: TDS ON DISBURSEMENT (1,38,49,250 + 68,34,327) 2,06,83,577 TO BE INVESTED 16,36,62,023 AMOUNT INVESTED IN IDBI BANK DEPOSIT 16,36,62,028 O N 31.5.2006 @ 5.75% HOWEVER, IN CHANGE OF INTEREST SAME AMOUNT RE INVESTED WITH SBI ON 30.8.2006 @ 8.2% LTCG IS NIL. (C) LONG TERM CAPITAL GAIN ADDITIONAL COMPENSATION RECEIVED FROM SMC FOR THE LAND ACQUIRED IN 1996 RS.69,45,415 AMOU NT RECEIVED ON 5.10.2006 AFTER DEDUCTING TDS RS.10,70,107. THE AMO UNT RECEIVED RS.58,75, 308 HAS BEEN INVESTED IN IDBI OMNI BONDS RS.60,00,000 ON 12.12.2006. HENCE LTCG IS NIL. (3) S.M.C. HAS RELEASED ONLY 80% OF THE CONSIDERA TION, RETAINING 20% FOR THE LEGAL COMPLIANCE AND DECLARATION OF AWARD U NDER THE LAND ACQUISITION ACT. (4) OUT OF THE 80% CONSIDERATION TDS U/S 194 I.A- R S.2,06,83,577 WAS DEDUCTED AND PAID BY S.M.C. ON 31.03.2006. TDS CERT IFICATE ISSUED BY SMC FOR ASST. YEAR 2006-07. HOWEVER, THE TRUST RESE RVE RIGHT TO CLAIM IT REFUND IN ASST. YEAR 2007-08 SINCE THE LEGAL COMPLI ANCES AS TO THE LAND ACQUISITION IS COMPLETED IN THE YEAR 2006-07 (I.E. ASST. YEAR 2007-08). (5) EVEN IF THE TRANSFER IS CONSIDERED TO HAVE TAKE N PLACE IN ASST. YEAR 2006-07, EVEN THEN 20% OF THE CONSIDERATION IS NOT RECEIVED AND HENCE IT CANNOT BE APPLIED. THE SAME MAY BE CONSIDERED IN TH E 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 CA PITAL GAINS ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 4 4. ON THE BASIS OF THIS NOTE AO CARRIED OUT ENQUIRI ES AND FOUND THAT FOLLOWING LANDS WERE COMPULSORILY ACQUIRED BY SURAT MUNICIPAL CORPORATION (SMC):- LAND AT VADOD SR.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 SR.NO. OLD SURVEY NO. NEW SURVEY NO. AREA (SQ. MTRS.) 1 205 1481 3,800 2 263 174 33,500 3 272 218 13,400 4 232 PAIKEE 65 1,42,142,165 TOTAL 1,92,865 LONG TERM CAPITAL GAINS AROSE ON SUCH ACQUISITION. BUT THE ASSESSEE HAD CLAIMED EXEMPTION ON SUCH GAINS, WHICH WAS WORKED B Y IT AS UNDER :- SL. NO. LOCATION AGGREGATE AREA IN SQ.M. AGGREGATE SALE PRICE IN RS. 80% AMOUNT RELEASED 20% BALANCE NOT RELEASED BOOK VALUE (RS.) LTCG (RS.) 1 AT VADOD 84,600 7,61,40,000 6,09,12,000 1,52,28,000 2,794 7,61,37,206 2 AT BHESTAN 1,92,865 15,42,92,000` 12,34,33,600 3,08,58,400 26,906 15,42,65,094 THE LONG TERM CAPITAL GAIN SO WORKED OUT WAS TREATE D BY THE ASSESSEE IN THE FOLLOWING MANNER- AGGREGATE CONSIDERATION AS SUPRA 23,04 ,32,000 LESS 20% TO BE RECEIVED 4,60,86,400 BALANCE 18,43,45,600 LESS TDS ON DISBURSEMENT 2,06,83,577 ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 5 AMOUNT AVAILABLE TO BE INVESTED 16,3 6,62,023 THE AMOUNT OF RS.16,36,62,023 WAS FIRST INVESTED IN IDBI BANK DEPOSIT ON 31.05.2006. LATER ON IN CHANGE OF INTEREST THE S AME AMOUNT WAS REINVESTED IN STATE BANK OF INDIA BANK DEPOSIT ON 3 0.08.2006. HENCE, ON THIS AMOUNT EXEMPTION UNDER SECTION 11(1A) OF THE A CT WAS CLAIMED BY THE ASSESSEE TRUST AS THE NET CONSIDERATION HAS BEE N UTILIZED IN ACQUIRING ANOTHER CAPITAL ASSET I.E. FIXED DEPOSITS WITH BANK . ON 80% OF THE CONSIDERATION RELEASED BY THE SMC TAX AMOUNTING TO RS.2,06,83,577 WAS DEDUCTED AT SOURCE BY THE SMC AN D PAID ON 31.03.2006. 5. ON THE BASIS OF ABOVE CALCULATION ASSESSEE POINT ED OUT THAT IT HAS INVESTED RS.16,36,62,023/- IN IDBI BANK DEPOSIT ON 31.5.2006 AND SUBSEQUENTLY IT WAS TRANSFERRED TO STATE BANK OF IN DIA, AS A DEPOSIT, ON 30.8.2006. AS PER ASSESSEE NET CONSIDERATION WAS UT ILIZED IN ACQUIRING ANOTHER ASSET I.E. F.D. IN THE BANK. THUS ENTIRE GA INS WAS EXEMPT UNDER SECTION 11(1A). THE AO DID NOT AGREE WITH THE ASSES SEE AND DENIED EXEMPTION ON THE CAPITAL GAINS FOR THE FOLLOWING RE ASONS:- PROPERTY IN QUESTION WAS NOT HELD OR USED FOR CHARI TABLE PURPOSES. ACCORDING TO THE AO THE PROPERTY SHOULD NOT ONLY BE HELD UNDER THE TRUST BUT SHOULD BE HELD FOR CHARITABLE PURPOSES AT THE S AME TIME. MERE PASSIVE POSSESSION OR OWNERSHIP OF THE TRUST SHALL NOT MAKE THE PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES AUTOMATICALLY. ON LY POSSESSION OR OWNERSHIP CANNOT BE HELD TO SUFFICE THE CONDITION P UT FORTH BY WORDS HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOU S PURPOSES. THUS ACCORDING TO THE AO IF THE PROPERTY IS NOT USED FOR THE PURPOSE OF TRUST IT WILL NOT BE ENTITLED TO AVAIL THE BENEFIT IN RELATI ON TO THAT PROPERTY. ACCORDING TO THE AO 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 ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 6 BARREN AND NOT FIT FOR CULTIVATION. IN FACT THE LAN DS WERE LYING UNUSED AS FALLOW WHICH WAS CONFIRMED THROUGH STATEMENT AS WEL L AS INSPECTORIAL ENQUIRY. THE AO REJECTED THE ASSERTION ON OATH BY T HE MANAGING TRUSTEE THAT LANDS WERE USED FOR CULTIVATION OF FODDER AND THE SAID BROCHURE DID NOT GIVE CORRECT INFORMATION. IT WAS OLD AND NOT UP DATED. (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 REMA INED FALLOW. AFTER MONSOON SOME WEEDS AND GRASSES GROW NATURALLY. (4) THE ASSESSEE TRUST DID NOT CONTEST THE RESOLUTI ON/PROPOSAL OF SMC TO COMPULSORILY ACQUIRE THE SAID PROPERTY: IT WAS B ECAUSE ACCORDING TO THE AO THE LAND WAS NOT USED BY THE TRUST AND WAS LYING FALLOW. (5) THE ASSESSEE TRUST COULD NOT PRODUCE RELEVANT D OCUMENTS AND OTHER DOCUMENTS TO SUPPORT ITS CLAIM THAT PROPERTY WAS US ED FOR CHARITABLE PURPOSES. THE AFFIDAVIT FILED BY THE MANAGING TRUST EE WAS NOT ACCEPTED BY THE A.O. (6) SPOT ENQUIRIES AND EXAMINATION OF IMPORTANT & R ELEVANT PERSONS ON OATH ALSO CORROBORATE THE FINDINGS. IT WAS FOUND BY THE AO THAT LANDS WERE NEVER USED FOR ANY PURPOSE BY THE TRUST. (7) THE DOCUMENTS REQUISITIONED FROM THE SURAT MUNI CIPAL CORPORATION ALSO PROVE THAT THE PROPERTY WAS NOT HELD FOR THE O BJECTS OF THE TRUST. SMC REPLIED VIDE ITS LETTER DATED 9.12.2009 THAT THE LA NDS ACQUIRED BY IT FROM THE TRUST WERE NEVER USED FOR ANY AGRICULTURAL PURP OSE. (8) LETTER FROM THE OFFICE OF THE ASSISTANT CHARITA BLE COMMISSIONER ONLY CONFIRMS THE OWNERSHIP AND NOT THE PURPOSE OF HOLDING. (9) THE FACT THAT LAND WAS ACQUIRED BY SMC INDICATE S THAT LAND WAS NOT PUT TO ANY USE. SINCE THE LAND TRANSFERRED WAS NOT PUT TO ANY USE FOR CHARITABLE PURPOSES ASSESSEE WAS HELD NOT ENTITLED TO EXEMPTION UNDER SECTION 11(1A). THE AO ACCORDINGLY TAXED THE CAPITA L GAINS. 6. THE LD. CIT(A) CONFIRMED THE ORDER OF AO. HE UPH ELD THE REASONINGS GIVEN BY THE AO THAT - ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 7 (1) ACQUISITION BY THE GOVERNMENT AGENCY ESTABLISHE D THE FACT THAT LANDS IN QUESTION WERE NOT USED FOR STATED ACTIVITI ES AND OBJECTIVES OF THE TRUST. THE LANDS SO ACQUIRED WERE BARREN AND FALLOW AND WERE OF NO USE TO ANY ONE. (2) THE BROCHURE ISSUED BY THE TRUST AND SPOT ENQUI RIES ALSO SUGGESTED THAT LANDS IN QUESTION WERE NEVER USED FOR ANY PURP OSE AND THEY WERE JUST LYING BARREN AND FALLOW. (3) THE ACQUISITION WAS NEVER CONTESTED BY THE ASSE SSEE. THE MANAGING TRUSTEE COULD NOT REBUT THE FINDING AN D OBSERVATION OF AO. FINALLY THE LD. CIT(A) HELD AS UNDER WHILE CONFIRMI NG THE ORDER OF THE AO:- 7.8 SUMMING UP, IT MUST BE UNDERSTOOD AND APPRECIA TED THAT A TRUST IS SET UP FOR A SPECIFIC PURPOSE, USUALLY FOR THE BENE FIT OF A PARTICULAR INDIVIDUAL OR INDIVIDUALS, OR THE PUBLIC IN GENERAL . THE TRUST RECEIVES DONATIONS OR GIFTS OR ENDOWMENTS FOR CARRYING OUT I TS TASK AND ACTIVITY FOR CREATING THE STATED BENEFIT AND REACHING THE SAME T O THE INDIVIDUAL OR THE PUBLIC, FOR WHOM THE TRUST IS SET UP. ANY ASSET WHI CH DOES NOT FULFILL THE STATED OBJECTIVES OR PURPOSES OF THE TRUST, AND DOE S NOT AID OR SUPPORT THE ACTIVITY THAT THE TRUST IS ENGAGED IN FOR THE BENEF IT OF THE INDIVIDUAL OR THE PUBLIC, CANNOT BE SAID TO BE HELD UNDER TRUST. THER E 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 O F THE TRUST. IN THE CASE OF THE ASSESSEE, THE FACTS WHICH HAVE BEEN DIS CUSSED 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 WELFA RE OF ANIMALS AND BIRDS. THEREFORE, IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN DENYING THE EXEMPTION CLAIMED U/S 11(1A) OF THE IT ACT OF THE S UM OF RS.23,04,02,300/- THE ADDITION OF WHICH TO THE ASSE SSEES 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 AL L THROUGH THAT IT IS ENGAGED IN CHARITABLE WORK. THE TOTAL VALUE OF THE ASSET OF THE TRUST IS MORE THAN RS.47 CRORES. THE LAND IN QUESTION FORMED PART OF THE ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 8 ASSESSEES CORPUS. THEY WERE USED FOR CENTURIES FOR GRAZING CATTLE WHICH EAT THE GRASS GROWING ON THE LAND. IN MONSOON THEY EAT GREEN GRASS ON THE VERY LAND. THE TRUST IS FOR THE BENEFIT OF CATTLE I NCLUDING STRAY CATTLE. THE LANDS WERE OPEN LAND AND WERE OPEN FOR STRAY ANIMAL S ALSO. THE AUTHORITIES HAVE INCORRECTLY APPLIED CONCEPT OF AGR ICULTURAL ACTIVITIES WHICH WAS IN FACT NOT CARRIED OUT. THE LD. AR SUBMI TTED THAT SUB-SECTION (1A) OF SECTION 11 PERTAINS TO INCOME ARISING FROM THE PROPERTY HELD UNDER THE TRUST AND SUCH INCOME SHALL NOT BE INCLUD ED IN THE TOTAL INCOME IF PROVISIONS OF SECTIONS 11 & 12 ARE APPLICABLE TO A TRUST. ON THE OTHER HAND SUB-SECTION (1A) PROVIDES THE EXEMPTION FROM C APITAL GAIN ARISING FROM THE PROPERTY HELD UNDER THE TRUST. ACCORDING T O THE LD. AR BOARDS CIRCULAR DATED 6.1.1972 WHOSE PARA 73 TO 78 ARE REL EVANT ALSO CLARIFY THIS POSITION. THE RELEVANT PORTION FROM THE DEPARTMENTA L CIRCULAR READS AS UNDER :- 73. UNDER SECTION II, INCOME DERIVED FROM PROPERTY HELD UNDER TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES IS EXEMPT FROM INC OME-TAX TO THE EXTENT SUCH INCOME IS ACTUALLY APPLIED TO SUCH PURPOSES DU RING THE PREVIOUS YEAR ITSELF OR WITHIN THREE MONTHS NEXT FOLLOWING. AS INCOME INCLUDES 'CAPITAL GAINS, A CHARITABLE OR RELIGIOUS TRUST WO ULD FORFEIT EXEMPTION FROM INCOME-TAX IN RESPECT OF ITS INCOME BY WAY OF CAPITAL GAINS UNLESS SUCH INCOME IS ALSO APPLIED TO THE PURPOSES OF THE TRUST DURING THE STIPULATED PERIOD, ..................... 74, THIS DIFFICULTY HAS BEEN ACCENTUATED AS A RESUL T OF CERTAIN AMENDMENTS MADE IN THE SCHEME OF TAX EXEMPTION OF CHARITABLE A ND RELIGIOUS TRUSTS THROUGH THE FINANCE ACT, 1970. 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 ....,.,. ,,......,.....,. THESE INSTRUCTIONS HAVE RECENTLY BEEN REITERATED. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 9 76. WITH A VIEW TO PLACING THE AFORESAID ADMINISTRA TIVE INSTRUCTIONS ON A LEGAL FOOTING AND REMOVING THE DISADVANTAGE TO CHAR ITABLE AND RELIGIOUS TRUSTS FOR THE PAST AS ALSO THE FUTURE, SECTION 11 HAS BEEN AMENDED, BY SECTION 5 OF THE FINANCE (NO, 2) ACT, 1971 BY WAY O F 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 UN DER TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES IS TRANSFERRED AND THE WHOLE OR ANY PART OF THE NET CONSIDERATION FOR THE TRANSFER (I.E. FUL L VALUE OF THE CONSIDERATION AS REDUCED BY THE EXPENDITURE INCURRE D WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER) IS UTI LIZED FOR ACQUIRING ANOTHER CAPITAL ASSET TO BE HELD AS PART OF THE COR PUS OF THE TRUST, THE CAPITAL GAIN ARISING FROM THE TRANSFER WILL BE REGA RDED AS HAVING BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES. THIS SUB-SECTION (1) TO SECTION 11 RELATES TO EXEMP TION 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 O R RELIGIOUS PURPOSES. ACCORDING TO THE LD. AR THE PHRASE PROPERTY HELD U NDER THE TRUST COULD ONLY BE UNDERSTOOD TO MEAN OWNING A PROPERTY, SE CONDLY THAT TOO FOR THE PURPOSES OF OBJECTS OF THE TRUST. THE PHRASE O NLY FOR CHARITABLE AND/OR RELIGIOUS PURPOSES DOES NOT NECESSARILY MEAN THAT ALL THE PROPERTY SHOULD ALWAYS BE ACTUALLY AND ACTIVELY USED OR UTILIZED. O N THE OTHER HAND, THE CONDITION LAID DOWN IN SUB-SECTIONS (1) AND (1A) WO ULD STILL BE FULFILLED IF PROPERTY OF THE TRUST IS NOT USED FOR ANY OTHER PUR POSES. EVEN THE DEPARTMENT HAS NOT MADE ANY ALLEGATION THAT LANDS W ERE USED FOR ANY OTHER PURPOSES. THEIR ONLY ALLEGATION WAS THAT IT W AS THE LAND WHICH WAS NOT USED FOR STATED OBJECTS. ACCORDING TO THE LD. A R, ONCE THE PROPERTY IS HELD UNDER THE TRUST AND IS NOT USED FOR ANY OTHER PURPOSES THEN CAPITAL GAINS ARISING OUT OF TRANSFER OF SUCH LAND CAN ONLY BE DEALT WITH UNDER SECTION 11(1A). WHERE PROPERTY IS NOT USED OR HELD FOR ANY OTHER OBJECT OTHER THAN THE OBJECTS OF THE TRUST, THEN WHOLE OF THE CAPITAL GAINS WOULD ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 10 BE TREATED AS EXEMPT OR OTHERWISE IN ACCORDANCE WIT H SECTION -11(1A) AND WHERE PROPERTY IS PARTLY HELD FOR THE OBJECTS OF TH E TRUST AND PARTLY HELD FOR OTHER OBJECT THEN PROPORTIONATELY CAPITAL GAINS WOULD BE DEALT WITH AS PROVIDED UNDER THAT SECTION AND EXEMPTION WOULD BE ALLOWED WHICH IS TO BE CALCULATED IN ACCORDANCE WITH SECTION 11(1A). TH E LD. AR REFERRED TO THE DECISION OF HON. GUJARAT HIGH COURT IN CIT VS. HAZARAT PIR SHAH-E- ALAM ROZA ESTATE TRUST (2002) 256 ITR 193 (GUJ) FOR THE PROPOSITION THAT WHERE A TRUST IS REGISTERED AS A 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 WH AT INCOME IS DERIVED FROM SUCH PROPERTY. HE REFERRED TO THE FOLLOWING PO RTION FROM THE ABOVE JUDGMENT AS UNDER :- 'WHEN EXEMPTION IS CLAIMED UNDER SECTION 11(1) OF T HE INCOME-TAX ACT, 1961, A QUESTION MAY ARISE BEFORE THE TAX AUTHORITY , WHETHER THE PROPERTY FROM WHICH INCOME IS DERIVED IS A PROPERTY HELD UND ER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. THEREFORE, THE AS SESSING OFFICER MAY CALL UPON THE PERSON CLAIMING SUCH EXEMPTION TO PRO DUCE EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE PROPERTY IN QUESTION WAS HELD UNDER TRUST. SUCH INQUIRY IS NOT AN INQUIRY FOR ADJUDICATING UPO N THE TITLE TO THE PROPERTY, BUT ONLY AN INQUIRY AIMED AT ASCERTAINING WHETHER THE EXEMPTION CLAIMED UNDER SECTION 11 IS WARRANTED. DU RING SUCH INQUIRY, WHICH IS UNDERTAKEN IN THE PROCESS OF MAKING OF THE ASSESSMENT ORDER, THE NATURE OF EVIDENCE ADDUCED OR GATHERED MAY BE IN TH E 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 O THER ADJUDICATIONS, HAVING BEARING ON THE TITLE TO THE PROPERTY, MADE BY ANY C OMPETENT FORUM. THUS THE SCOPE OF THE INQUIRY UNDER THE INCOME-TAX ACT, IS WHOLLY DIFFERENT FROM THE SCOPE OF THE INQUIRY UNDER THE BOMBAY PUBL IC TRUSTS ACT, 1950, WHEN THE EVIDENCE THAT MAY BE ADDUCED BEFORE THE AS SESSING OFFICER OR GATHERED BY HIM DURING THE ASSESSMENT PROCEEDINGS C ONCLUSIVELY SHOWS THAT THE TRUST IS A REGISTERED PUBLIC TRUST, AND TH AT THE PROPERTY FROM WHICH THE INCOME IS DERIVED, IS PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, THE TAX AUTHORITY WOULD ORDINAR ILY HAVE TO ACCEPT SUCH ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 11 EVIDENCE AND PROCEED TO DETERMINE WHAT INCOME IS DE RIVED 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 NECESSA RY THAT ASSESSEE SHOULD EARN ONLY SUCH INCOME WHICH IS TAXABLE. IT I S LEFT TO THE ASSESSEE TO EARN AND NOT TO EARN AND WHERE HE EARNS TO PAY TAXE S THEREON. WHAT IS REQUIRED IS THAT THE PROPERTY SHOULD BE VESTED IN T HE TRUST FOR CHARITABLE PURPOSES AND THERE SHOULD NOT BE ANY OTHER NON-CHAR ITABLE OBJECT ATTRIBUTABLE TO IT. IF THIS CONDITION IS SATISFIED THEN INCOME THERE FROM OR CAPITAL GAINS ON TRANSFER OF IT WOULD BE DEALT IN A CCORDANCE WITH SECTION 11. IF A PROPERTY IS NOT HELD UNDER TRUST THEN ON I TS TRANSFER CAPITAL GAINS WOULD BE COMPUTED AND CHARGED TO TAX IN ACCORDANCE WITH SECTION 45 TO 50C. THE ONLY ALLEGATION THE DEPARTMENT IS MAKING I S THAT LAND WAS NOT PUT TO ANY USE BUT THE LD. AR SUBMITTED THAT LAW DO ES NOT IMPOSE THE CONDITION THAT PROPERTY SHOULD ALWAYS BE PUT TO SOM E USE OF CHARITABLE NATURE SO AS TO DEMONSTRATE ITS HOLDING AND FOR ENT ITLEMENT OF EXEMPTION UNDER SECTION 11. THE CONDITION OF COMPULSORILY PUT TING THE PROPERTY HELD UNDER THE TRUST TO USE IS ALIEN TO SECTION 11 AND, THEREFORE, CANNOT BE INVOKED FOR GRANTING OR NOT GRANTING EXEMPTION UNDE R SECTION 11. THE LD. AR REFERRED TO THE DECISION OF HON. CALCUTTA HIGH C OURT IN CIT VS. HINDUSTHAN WELFARE TRUST (1994) 206 ITR 138 (CAL) W HEREIN EQUITY SHARES WERE HELD AS PROPERTY UNDER TRUST. IN SOME Y EARS DIVIDENDS WERE RECEIVED AND IN SOME YEARS DIVIDENDS WERE NOT RECEI VED. THE DEPARTMENT CANNOT SAY THAT IN THOSE YEARS WHERE DIVIDENDS WERE NOT RECEIVED SHARES WERE NOT HELD UNDER TRUST. ONCE SHARES ARE ARISING EITHER IN THE CORPUS OF THE TRUST OR OTHERWISE, THEY WOULD BE PROPERTY HELD UNDER TRUST WHETHER DIVIDEND IS EARNED OR NOT EARNED. THE LD. AR THEN R EFERRED TO INSTRUCTION NO.883 DATED 24.9.1975 FOR THE PROPOSITION THAT WHE RE NET CONSIDERATION ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 12 ON TRANSFER OF PROPERTY HELD UNDER TRUST IS INVESTE D IN FIXED DEPOSIT FOR A PERIOD OF SIX MONTHS OR ABOVE THEN IT WOULD BE REGA RDED AS UTILIZATION OF THE NET CONSIDERATION FOR ACQUIRING ANOTHER CAPITAL ASSET. RELEVANT PORTION OF INSTRUCTION NO.883 DATED 24.9.1975 READS AS UNDE R :- SECTION 11(1A) OF THE INCOME-TAX ACT, 1961 ANOTH ER CAPITAL ASSET SCOPE OF THE EXPRESSION, - SECTION 11(1A) OF THE IN COME-TAX ACT, 1961, PROVIDES THAT WHERE A CAPITAL ASSET, BEING PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES IS TRAN SFERRED AND THE WHOLE OR ANY PART OF THE NET CONSIDERATION IS UTILIZED FO R 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 THEREIN. 2. THE BOARD HAD OCCASION TO EXAMINE WHETHER INVEST MENT 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 PE RIOD OF SIX MONTHS OR ABOVE WOULD BE REGARDED AS UTILIZATION OF THE NET C ONSIDERATION FOR ACQUIRING ANOTHER CAPITAL ASSET WITHIN THE MEANIN G OF SECTION 11(1A) OF THE INCOME-TAX ACT, 1961 [INSTRUCTION NO.883, DATE D 24.9.1975 1994) 206 ITR 138, 147 (CAL)] IN THE ALTERNATIVE LD. AR SUBMITTED THAT IN CASE TH E EXEMPTION IS DENIED THEN VALUE OF THE LAND SHOULD BE TAKEN AS ON 1.4.19 81 AND BENEFIT OF INDEXATION SHOULD BE GIVEN. THE LD. AR ALSO SUBMITT ED THAT THE GOVERNMENT CAN ACQUIRE A PROPERTY HELD FOR ONE PUBL IC PURPOSES IF SUCH ACQUISITION IS NECESSARY FOR ANOTHER PUBLIC PURPOSE S. HE REFERRED TO THE FOLLOWING TWO JUDGEMENTS:- (1) AIR 1968 SUPREME COURT 432 (V 55 C 95) (FROM GU JARAT :8 GUJ LR 856) ABDUL HUSSAIN TAYABALI ETC. APPELLANTS VS. THE STATE OF GUJARAT AND OTHERS, (IN ALL THE APPEALS) RESPONDENTS. CIVIL APP EALS NOS.369 TO 375 OF 1967, DTD.20.9.1967. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 13 (2) AIR 1990 ANDHRA PRADESH 357 M. PADMANABHA IY ENGAR, APPELLANT VS. THE GOVERNMENT OF ANDHRA PRADESH AND OTHERS, RESPONDENTS. WRITE APPEAL NOS.1342/1989 AND 185 OF 1990, DTD.16.3.1990. 9. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT IF A PROPERTY IS NOT USED FOR CHARITABLE PURPOSES THEN IT CANNOT BE SAID THAT IT IS WHOLLY HELD FOR CHARITABLE PURPOSES. THE LD. DR EMPHASIZED ON T HE WORD WHOLLY TO SUPPORT HIS ARGUMENTS THAT USE OF AN ASSET FOR CHAR ITABLE PURPOSES IS AN ESSENTIAL INGREDIENT FOR COMING TO THE CONCLUSION T HAT A PROPERTY IS HELD FOR CHARITABLE PURPOSES. THE LAND WAS APPARENTLY NO T USED FOR ANY CHARITABLE PURPOSES BUT LYING BARREN AND FALLOW AND THIS WAS THE REASON IT WAS ACQUIRED BY SMC. BROCHURE PRINTED BY THE TRUST IN THE YEAR 2005 ALSO SHOWED THAT LANDS IN ITS POSSESSION WERE BARREN AND NOT FIT FOR CULTIVATION. THE REVENUE RECORD ALSO CONFIRMED THIS FACT, SPOT E NQUIRIES CARRIED BY THE DEPARTMENT ALSO SUPPORTED THIS FINDING. ENQUIRIES W ERE ALSO CARRIED OUT FROM SMC WHICH ALSO CLEARLY STATED IN THEIR LETTER DATED 9.12.2009 THAT LANDS WERE NOT USED FOR ANY AGRICULTURAL PURPOSES. THE LD. DR SUBMITTED THAT THE TRUST DID NOT CONTEST THE ACQUISITION OF L ANDS BY SMC PRESUMABLY BECAUSE THE LANDS WERE OF NO USE FOR CHARITABLE PUR POSES. THE CLAIM OF THE ASSESSEE THAT LANDS WERE USED FOR CATTLE SHEDS AND HARVESTING GREEN FODDER FOR ANIMALS WAS NOT SUPPORTED BY ANY EVIDENCE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE CASE OF REVEN UE IS THAT IF AN ASSET HELD BY A TRUST IS NOT USED FOR CHARITABLE PURPOSE, THEN CAPITAL GAINS ARISING ON ITS TRANSFER WOULD NOT BE ENTITLED TO EX EMPTION UNDER SECTION 11(1A). EVEN THOUGH LENGTHY ARGUMENTS HAVE TAKEN PL ACE ON BOTH THE SIDE. THE REVENUE SUPPORTED ITS STAND WITH VARIOUS EVIDENCES TO SHOW THAT LAND WAS NOT AT ALL USED FOR EITHER CULTIVATION OR FOR ANY CHARITABLE WORK AND CLAIM THAT, IT IS USED FOR EATING GRASS WAS NOT SUPPORTED BY ANY ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 14 EVIDENCE. THUS ACCORDING TO THE REVENUE IT WAS A SI MPLE UNUSED LAND AND THEREFORE, CANNOT BE SAID TO BE WHOLLY USED FOR CHA RITABLE PURPOSES. THE WORD WHOLLY ACCORDING TO THE REVENUE MEANS THAT A SSET OF THE TRUST SHOULD ALWAYS BE AND CONTINUED TO BE UTILIZED FOR C HARITABLE WORK AND IT MUST HAVE EVIDENCE TO SHOW THAT AT NO POINT OF TIME ASSET WAS KEPT IDLE OR PASSIVE. IF THE ASSET IS HELD IDLE OR PASSIVE AND N OT USED FOR ANY CHARITABLE WORK IT CEASES TO BE THE PROPERTY HELD UNDER TRUST AND THEREFORE, LOSES EXEMPTION OR APPLICATION OF PROVISIONS OF SECTION 1 1(1A). ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS MADE STRENUOUS AR GUMENTS 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. HOWE VER, WE ARE NOT IMPRESSED WITH THE ARGUMENTS REGARDING USE OR NON U SE OF THE LAND ACQUIRED BY SMC AS IN OUR CONSIDERED VIEW ACTUAL U SER 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 REPORTE D SOME OF THE OBJECTS AS UNDER IN WHICH NO PARTY HAS ANY DISPUTE:- (I) TO PROVIDE FOR PROTECTION AND MAINTENANCE OF CA TTLE AND OTHER ANIMALS GIVEN TO THE TRUST PERMANENTLY BY ANY PERSO N 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 ARE NOT LOOKED AFTER PROPERLY AND HAVE BEEN ADM ITTED IN SHRI SURAT PANJRAPOLE TRUST. (III) TO TAKE STEPS IN IMPROVING CATTLE REARING AND BY THAT TO INCREASE THE CATTLE WEALTH AND MILK PRODUCTION OF THE COUNTRY. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 15 (IV) TO ATTAIN THE ABOVE OBJECTS, TO ACQUIRE BUI LDINGS, LANDS FOR GRAZING, PURCHASE, SALE AND ON LEASE TILLING THE LAND OR GET TING THE LAND TILLED AND DO EVERY THING WHICH IS APPROPRIATE AND IN FOR THE BENEFIT OF THE INSTITUTION AND ACCORDINGLY PURCHASE AND MAINTAIN C ATTLE. (V) FOR PROTECTION AND MAINTENANCE OF ANIMALS IN PANJRAPOLE AND TO ITEMS AS DONATION FROM THE PEOPLE AND BY ARRANGING YEARLY AND OCCASIONAL FUNCTIONS TO COLLECT AND TO GET INCOME F ROM THE PROPERTY OF THE TRUST. ONCE A TRUST IS EXISTING FOR CHARITABLE PURPOSES AN D IT IS REGISTERED UNDER SECTION 12A THEN ITS INCOME HAS TO BE COMPUTED IN A CCORDANCE WITH SECTIONS 11,12 & 13 AND OTHER PROVISIONS OF THE ACT WOULD NOT BE APPLICABLE. IN THE CASE OF U.P. FOREST CORPORATION & ANR. VS. DCIT (2007) 165 TAXMAN 533 (SC) IT WAS HELD THAT FOR AVA ILING BENEFIT OF SECTIONS 11,12 & 12A THE REGISTRATION UNDER SECTION 12A IS A CONDITION PRECEDENT UNLESS AND UNTIL AN INSTITUTION IS REGIST ERED UNDER SECTION 12A IT CANNOT AVAIL THE BENEFIT OF SECTION 11(1A). THE OBS ERVATION OF THE HON. SUPREME COURT IN THE ABOVE CASE IS AS UNDER :- A CONJOINT READING OF SECTIONS 11,12 AND 12A MAKES IT CLEAR THAT REGISTRATION UNDER SECTION 12A IS A CONDITION PRECE DENT FOR AVAILING BENEFIT UNDER SECTIONS 11 & 12. UNLESS AND UNTIL AN INSTITUTION IS REGISTERED UNDER SECTION 12A, IT CANNOT CLAIM THE B ENEFIT OF SECTION 11(1)(A). HONBLE MADHYA PRADESH HIGH COURT IN MADHYA PRADESH MADHYAM VS. CIT (2002) 125 TAXMAN 382/256 ITR 277 (MP) HELD THA T ONCE AN INSTITUTION IS REGISTERED AS CHARITABLE THE AO CANN OT GO BEHIND REGISTRATION IN ASSESSMENT PROCEEDINGS. THEY ARE PRIMA FACIE BOU ND BY SUCH A REGISTRATION. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 16 HONBLE SUPREME COURT IN ACIT VS. SURAT CITY GYMKHA NA (2008) 200 ITR 0214 (SC) HELD THAT ONCE A TRUST IS REGISTERED UNDER SECTION 12A IT IS FAIT ACCOMPLI AND THE AO CANNOT THEREAFTER MAKE FUR THER PROBE INTO THE OBJECTS OF THE TRUST. THE DECISION OF HON. GUJARAT HIGH COURT IN HIRALAL BHAGWATI VS. CIT (2000) 246 ITR 188 (GUJ) ATTAINED FINALITY ON THIS POINT THAT ONCE REGISTRATION IS GRANTED UNDER SECTI ON 12A THEN AO CANNOT THEREAFTER MAKE FURTHER PROBE INTO THE OBJECTS OF T HE TRUST. HON. GUJARAT HIGH COURT IN SPECIAL CIVIL APPLICATIO N NO.2464 OF 2010 IN AHMEDABAD URBAN DEVELOPMENT AUTHORITY VS. DY. DIREC TOR OF INCOME- TAX (EXEMPTION) PRONOUNCED ON 22.02.2010 HELD THAT ONCE CERTIFICATE OF REGISTRATION IS GRANTED UNDER SECTION 12A, AO CANNO T TAKE STAND THAT THE TRUST IS NOT FULFILLING CONDITIONS FOR APPLICABILIT Y OF SECTIONS 11 & 12. IN THIS REGARD WE REFER TO PARA 9 & 10 FROM THAT JUDGM ENT AS UNDER :- 9. SECTION 12AA OF THE ACT LAYS DOWN THE PROCEDURE FOR REGISTRATION IN RELATION TO THE CONDITIONS FOR APPLICABILITY OF SEC TIONS 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 SAT ISFACTION ABOUT (1) GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTI TUTION, (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 R ELATION TO INCOME OF A TRUST OR AN INSTITUTION UNLESS CONDITIONS STIPULATE D THEREIN ARE FULFILLED. THUS GRANTING OF REGISTRATION UNDER SECTION 12AA OF THE ACT DENOTES, AS PER LEGISLATIVE SCHEME, THAT CONDITIONS LAID DOWN I N SECTION 12A OF THE ACT STAND FULFILLED. 10. THE EFFECT OF SUCH CERTIFICATE OF REGISTRATION UNDER SECTION 12AA OF THE ACT, THEREFORE, CANNOT BE IGNORED OR WISHED AWA Y BY THE AO BY ADOPTING A STAND THAT THE TRUST OR INSTITUTION IS N OT FULFILLING CONDITIONS FOR APPLICABILITY OF SECTIONS 11 & 12 OF THE ACT. IN TH E CASE OF GESTETNER DUPLICATORS P. LTD. VS. CIT (1979) 117 ITR 1 (SC) T HE APEX COURT WAS CALLED UPON TO DETERMINE AS TO WHETHER THE CONTRIBU TION MADE BY THE EMPLOYER SHOULD BE TREATED AS A BUSINESS EXPENDITUR E, THE REQUIREMENT ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 17 BEING CONTRIBUTION SHOULD BE MADE TO A RECOGNIZED P ROVIDENT FUND. IN ALMOST SIMILAR CIRCUMSTANCES, THE AO IN THE SAID CA SE DID NOT HOLD IN FAVOUR OF THE EMPLOYER AND THE APEX COURT WHILE DEC IDING THE CONTROVERSY AS TO WHAT CONSTITUTED SALARY OBSERVED AS UNDER : - THE FACTS IN THE PRESENT CASE THAT NEED BE STRE SSED IN THIS BEHALF ARE THAT IT WAS AS FAR BACK AS 1937 THAT THE CIT HA D GRANTED RECOGNITION TO THE PROVIDENT FUND MAINTAINED BY THE ASSESSEE UN DER THE RELEVANT RULES UNDER THE 1922 ACT, THAT SUCH RECOGNITION HAD BEEN GRANTED AFTER THE TRUE NATURE OF THE COMMISSION PAYABLE BY THE ASSESSEE TO ITS SALESMEN UNDER THEIR CONTRACTS OF EMPLOYMENT, HAD BEEN BROUGHT TO THE NOTICE OF THE COMMISSIONER AND THAT THE SAID RECOGNITION HAD CONT INUED TO REMAIN IN OPERATION DURING THE RELEVANT ASSESSMENT YEARS IN Q UESTION, THE LAST FACT IN PARTICULAR CLEARLY IMPLIED THAT THE PROVIDENT FU ND OF THE ASSESSEE DID NOT SATISFY ALL THE CONDITIONS LAID DOWN IN R.4 OF PART A OF THE FOURTH SCHEDULE TO THE ACT EVEN DURING THE RELEVANT ASSESS MENT YEARS. IN THAT SITUATION WE DO NOT THINK THAT IT WAS OPEN TO THE T AXING AUTHORITIES TO QUESTION THE RECOGNITION IN ANY OF THE RELEVANT YEA RS ON THE GROUND THAT THE ASSESSEES PROVIDENT FUND DID NOT SATISFY ANY P ARTICULAR CONDITION MENTIONED IN R.4. IT WOULD BE CONDUCIVE TO JUDICIAL DISCIPLINE AND THE MAINTAINING OF CERTAINTY AND UNIFORMITY IN ADMINIST ERING THE LAW THAT THE TAXING AUTHORITIES SHOULD PROCEED ON THE BASIS THAT THE RECOGNITION GRANTED AND AVAILABLE FOR ANY PARTICULAR ASSESSMENT YEAR IMPLIES THAT THE PROVIDENT FUND SATISFIES ALL THE CONDITIONS UNDER R .4 OF PART A OF THE FOURTH SCHEDULE TO THE ACT AND NOT SIT IN JUDGMENT OVER IT. 12. ONCE IT IS UNDISPUTED THAT TRUST IS EXISTING FO R CHARITABLE PURPOSES AND IS REGISTERED UNDER SECTION 12A THEN BENEFIT OF EXEMPTION UNDER SECTIONS 11 & 12 CANNOT BE DENIED TO THE ASSESSEE T RUST SUBJECT TO CONDITIONS LAID DOWN UNDER SECTION 13. IN THE PRESE NT CASE THE ASSESSING AUTHORITY AND LD. CIT(A) HAVE NOT POINTED OUT ANY V IOLATION OF ANY PROVISION OF SECTION 13, THEREFORE, REJECTING THE E XEMPTION ON ACCOUNT OF PROVISIONS OF SECTION 13 HERE WOULD NOT ARISE. 13. NOW IT HAS TO BE SEEN WHETHER ASSESSEE TRUST AF TER HOLDING CERTIFICATE OF REGISTRATION UNDER SECTION 12A CAN B E DENIED EXEMPTION AVAILABLE TO IT UNDER SECTION 11(1A). FOR THE SAKE OF CONVENIENCE WE REPRODUCE SECTION 11(1A) AS UNDER :- ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 18 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 APPL IED TO CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT SPECIFIED HEREUNDER, NAMELY - (I) WHERE THE WHOLE OF THE NET CONSIDERATION IS UTILIZE D IN ACQUIRING THE NEW CAPITAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN; (II) WHERE ONLY A PART OF THE NET CONSIDERATION IS UTILI ZED FOR ACQUIRING THE NEW CAPITAL ASSET, SO MUCH OF SUCH CAPITAL GAIN AS IS EQUAL TO THE AMOUNT, IF ANY, BY WHICH THE AMOUNT SO UTILIZED EXCEEDS THE COST OF THE TRANSFERRED ASSET; (B) WHERE A CAPITAL ASSET BEING PROPERLY HELD UNDER TRUST IN PART ONLY FOR SUCH 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 APPROPRIATE FRACTION OF THE CAPITAL GAIN ARISING FROM THE TRANSFER SHALL BE DEE MED TO HAVE BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT SPEC IFIED HEREUNDER, NAMELY - (I) WHERE THE WHOLE OF THE NET CONSIDERATION IS UTILIZE D IN ACQUIRING THE NEW CAPITAL ASSET, THE WHOLE OF THE APPROPRIATE FRACTIO N OF SUCH CAPITAL GAIN; (II) IN ANY OTHER CASE SO MUCH OF THE APPROPRIATE FRACTI ON OF THE CAPITAL GAIN AS IS EQUAL TO THE AMOUNT, IF ANY, BY WHICH THE APPROP RIATE FRACTION OF THE AMOUNT UTILIZED FOR ACQUIRING THE NEW ASSET EXCEEDS THE APPROPRIATE FRACTION OF THE COST OF THE TRANSFERRED ASSET. EXPLANATION-IN THIS SUB-SECTION (I) APPROPRIATE FRACTION MEANS THE FRACTION WHICH REPRE SENTS THE EXTENT TO WHICH THE INCOME DERIVED FROM THE CAPITAL ASSET TRA NSFERRED WAS IMMEDIATELY BEFORE SUCH TRANSFER APPLICABLE TO CHAR ITABLE OR RELIGIOUS PURPOSES. (II) COST OF THE TRANSFERRED ASSET MEANS THE AGGREGATE O F THE COST OF ACQUISITION (AS ASCERTAINED FOR THE PURPOSES OF SECTIONS 48 & 4 9) OF THE CAPITAL ASSET WHICH IS THE SUBJECT OF THE TRANSFER AND THE COST O F ANY IMPROVEMENT THERETO WITHIN THE MEANING ASSIGNED TO THAT EXPRESS ION IN SUB CLAUSE (B) OF CLAUSE (1) OF SECTION 55; (III) NET CONSIDERATION MEANS THE FULL VALUE OF THE CONSI DERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET AS REDUCED BY ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. THUS THE ABOVE PROVISION PROVIDES EXEMPTION FROM CA PITAL GAINS ON TRANSFER OF THE CAPITAL ASSET BY THE TRUST. IN ADDI TION TO SUB-SECTION (1A) ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 19 WHICH DEALS WITH CAPITAL ASSET, SUB-SECTION (1) DEA LS WITH INCOME DERIVED FROM PROPERTY HELD UNDER THE TRUST. THE RELEVANT PR OVISIONS ARE AS UNDER :- 11. INCOME FROM PROPERTY HELD FOR CHARITABLE OR RE LIGIOUS PURPOSES (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON 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 APP LIED TO SUCH PURPOSES IN INDIA, AND WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART F OR APPLICATION TO SUCH PURPOSES IN INDIA TO THE EXTENT TO WHICH THE INCOME SO ACCUM ULATED OR SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE INCOME FROM SUCH PROPERT Y; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREATED BEFORE THE COMMENCEMENT O F THIS ACT TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA AN D 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 O F THE INCOME FROM SUCH PROPERTY; (C) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST - (I) CREATED ON OR AFTER THE 1 ST 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 IND IA, AND (II) FOR CHARITABLE OR RELIGIOUS PURPOSES, CREATED BEFORE THE 1 ST DAY OF APRIL, 1952 TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OUTSIDE INDIA; PROVIDED THAT THE BOARD BY GENERAL OR SPECIAL ORDER , HAS DIRECTED IN EITHER CASE THAT IT SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PE RSON IN RECEIPT OF SUCH INCOME, (D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION, EXPLANATION-FOR THE PURPOSE OF CLAUSES (A) AND (B) - (1) IN COMPUTING THE FIFTEEN PER CENT OF THE INCOME WHICH MAY BE ACCUMULATED OR SET APART, ANY SUCH VOLUNTARY CONTRIBUTIONS AS ARE REFE RRED TO IN SECTION 12 SHALL BE DEEMED TO BE PART OF THE INCOME, (2) IF IN THE PREVIOUS YEAR THE INCOME APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF THE EIGHTY FIVE PER CENT OF TH E INCOME DERIVED DURING THAT YEAR FROM PROPERTY HELD UNDER TRUST OR AS THE CASE MAY BE HEL D UNDER TRUST IN PART BY ANY AMOUNT - (I) FOR THE REASON THAT THE WHOLE OR ANY PART OF TH E INCOME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 20 (II) FOR ANY OTHER REASON, THEN- (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I) SO MU CH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS DOES NOT EXCEED THE SAID AMOUNT; AND (B) IN THE CASE REFERRED TO IN SUB CLAUSE (II) SO M UCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IMMEDIAT ELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED AS DOES NOT EXCEED THE SAID AMOUNT, MAY AT THE OPTION OF THE PERSON IN RECEIPT OF THE I NCOME [SUCH OPTION TO BE EXERCISED IN WRITING BEFORE THE EXPIRY OF THE TIME ALLOWED UN DER SUB-SECTION (1) OF SECTION 139 FOR FURNISHING THE RETURN OF INCOME] BE DEEMED TO B E INCOME APPLIED TO SUCH PURPOSES DURING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DE RIVED; AND THE INCOME SO DEEMED TO HAVE BEEN APPLIED SHALL NOT BE TAKEN INTO ACCOUN T IN CALCULATING THE AMOUNT OF INCOME APPLIED TO SUCH PURPOSES, IN THE CASE REFERR ED TO IN SUB-CLAUSE (I) DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DU RING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS THE CASE MAY BE AND IN THE CASE REFERRED TO IN SUB-CLAUSE (II) DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH THE INCOME WAS DERIVED. A JOINT READING OF SUB-SECTION (1) AND (1A) CLEARLY REVEALS THAT SUB- SECTION (1) IS APPLICABLE FOR PROVIDING EXEMPTION T O INCOME DERIVED FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSES SUBJECT TO SECTION 60 TO 63. WHEREAS SECTION 11(1A) DEALS WITH GAIN ARISING FROM TRANSFER OF CAPITAL ASSET HELD BY A CHARITABLE TRUST. IT ALSO P ROVIDES EXEMPTION FROM CAPITAL GAINS IF NEW CAPITAL ASSET IS ACQUIRED AND HELD FOR CHARITABLE PURPOSES. SUB-SECTION (5) OF SECTION 11 GIVES THE L IST OF CAPITAL ASSET WHICH CAN BE ACQUIRED OUT OF NET CONSIDERATION RECE IVED BY THE ASSESSEE ON TRANSFER OF PROPERTY HELD UNDER THE TRUST. SUB-S ECTION (1A) WAS INSERTED IN SECTION 11 BY FINANCE (NO.2) ACT OF 1971 WITH RE TROSPECTIVE EFFECT FROM 1.4.1962 THE OBJECT AND PROVISION OF THIS INSE RTION 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 PURP OSES DURING THE PREVIOUS ITSELF OR ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 21 WITHIN THREE MONTHS NEXT FOLLOWING. AS INCOME' INC LUDES 'CAPITAL GAINS' A CHARITABLE OR RELIGIOUS TRUST WOULD FORFEIT EXEMPTION FROM INC OME-TAX IN RESPECT OF ITS INCOME BY WAY OF CAPITAL GAINS UNLESS SUCH INCOME IS ALSO APP LIED TO THE PURPOSES OF THE TRUST DURING THE STIPULATED PERIOD. IN SOME CASES CHARITA BLE OR RELIGIOUS TRUSTS ARE REQUIRED TO SELL, IN THE INTEREST OF THE TRUST, CAPITAL ASSE TS FORMING PART OF THE CORPUS OF THE TRUST PROPERTY SOLELY WITH A VIEW TO ACQUIRING OTHER CAPI TAL ASSETS TO BE HELD AS PART OF THE CORPUS OF THE TRUST. THE REQUIREMENT THAT THE CAPIT AL GAINS ARISING FROM SUCH TRANSACTIONS SHOULD BE UTILIZED FOR CHARITABLE OR R ELIGIOUS PURPOSES DURING THE ACCOUNTING YEAR ITSELF OR WITHIN THREE MONTHS IMMED IATELY FOLLOWING, HAS THE UNINTENDED EFFECT OF PROGRESSIVELY REDUCING THE COR PUS OF THE TRUST AND THE INCOME YIELDED BY IT. 74. THIS DIFFICULTY HAS BEEN ACCENTUATED AS A RESUL T OF CERTAIN AMENDMENT IN THE SCHEME OF TAX EXEMPTION OF CHARITABLE AND RELIGIONS TRIALS THROUGH THE FINANCE ACT, 1970. UNDER ONE OF THESE AMENDMENTS, A CHARITABLE O F RELIGIOUS TRUST WOULD FORFEIT EXEMPTION FROM TAX ON ITS INCOME IF THE TRUST FUNDS , CONTINUING ITS CORPUS OR INCOME, ARE INVESTED IN A CONCERN IN WHICH THE AUTHOR OR FO UNDER OR THE TRUST OR ANY SUBSTANTIAL CONTRIBUTOR TO IT OR ANY RELATIVE OF SU CH AUTHOR, FOUNDER OR CONTRIBUTOR IS SUBSTANTIALLY INTERESTED. WHERE THE INVESTMENT OF T HE TRUST FUNDS IN SUCH CONCERN EXCEEDS 5% OF THE CAPITAL OF THE CONCERN, EXEMPTION IS FORFEITED IN RESPECT OF THE WHOLE OF THE INCOME OF THE TRUST, WHITE IN IT CASE WHERE THE INVESTMENT DOES NOT EXCEED 5% THE EXEMPTION IS LOST ONLY IN RESPECT OF THE INC OME FROM SUCH INVESTMENT, THE OTHER INCOME CONTINUING TO ENJOY TAX EXEMPTION. IN ORDER TO ENABLE CHARITABLE AND RELIGIOUS TRUSTS TO CHANGE THEIR INVESTMENTS SUITABLY, WITHOU T FORFEITING EXEMPTION FROM TAX, A SPECIFIC PROVISION WAS ALSO MADE IN THE INCOME-TAX ACT TO THE EFFECT THAT THE AFORESAID PROVISIONS WOULD NOT APPLY IN A CASE WHERE THE INVE STMENT OF THE TRUST FUNDS IN THE PROHIBITED CONCERNS DOCS NOT CONTINUE AFTER 31 -12- 1970. IN ORDER TO AVAIL OF THE BENEFIT OF THIS RELAXATION, MANY CHARITABLE OR RELI GIOUS TRUSTS DIVESTED THEMSELVES OF INVESTMENTS IN PROHIBITED CONCERNS BEFORE 1-1-1971. IF THE PROVISIONS OF THE LAW WERE CONSTRUED STRICTLY, SUCH TRUSTS WOULD HAVE FORFEITE D EXEMPTION FROM TAX IN RESPECT OF THEIR INCOME BY WAY OF CAPITAL GAINS ARISING FROM T HE TRANSFER OF SUCH INVESTMENTS UNLESS THEY APPLIED SUCH INCOME TO CHARITABLE OR RE LIGIOUS PURPOSES DURING THE RELEVANT ACCOUNTING YEAR OR WITHIN THREE MONTHS IMM EDIATELY FOLLOWING. 75. THE QUESTION OF ELIMINATING [HE DISADVANTAGE TO CHARITABLE OR RELIGIOUS TRUSTS IN BEING OBLIGED TO SPEND AWAY THE CAPITAL GAINS ARISI NG FROM THE TRANSFER OF ASSETS CONSTITUTING THE CORPUS OF THE TRUST INSTEAD OF ADD ING 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 ACQUIR ING ANOTHER CAPITAL ASSET FOR THE USE AND BENEFIT OF THE TRUST AND UTILIZED THE CAPITAL G AINS ARISING FROM THE TRANSACTION IN ACQUIRING A NEW CAPITAL ASSET, THE AMOUNT OF CAPITA L GAINS SO UTILIZED SHOULD LIE REGARDED AS HAVING BEEN APPLIED TO THE CHARITABLE O R RELIGIOUS PURPOSES OF THE TRUST. THESE INSTRUCTIONS HAVE RECENTLY BEEN REITERATED. 76, WITH A VIEW TO PLACING THE AFORESAID ADMINISTRA TIVE INSTRUCTIONS ON A LEGAL FOOTING AND REMOVING THE DISADVANTAGE TO CHARITABLE AND REL IGIOUS TRUSTS FOR THE PAST AS .ALSO THE FUTURE, SECTION 11 OF THE INCOME-TAX ACT HAS BE EN 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 CAS E WHERE A CAPITAL ASSET BEING ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 22 PROPERTY HELD UNDER TRUST FOR CHARITABLE OR RELIGIO US PURPOSES IS TRANSFERRED AND THE WHOLE OR ANY PART OF THE NET CONSIDERATION FOR THE TRANSFER (I.E., FULL VALUE OF THE CON- SIDERATION AS REDUCED BY THE EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY IN CONNEC- TION WITH THE TRANSFER IS UTILIZED FOR ACQUIRING AN OTHER CAPITAL ASSET TO BE HELD AS PART OF THE CORPUS OF THE TRUST, THE CAPITAL GAIN ARISIN G FROM THE TRANSFER WILL BE REGARDED AS HAVING BEEN APPLIED TO CHARITABLE OR RELIGIOUS P URPOSE. WHERE THE WHOLE OF SUCH NET CONSIDERATION IS UTILIZED IN ACQUIRING THE NEW CAPITAL ASSET, THE ENTIRE AMOUNT OF THE CAPITAL GAIN WILL BE REGARDED AS HAVING BEEN AP PLIED TO CHARITABLE OR RELIGIOUS PURPOSES, WHILE IN A CASE WHERE ONLY A PART OF THE NET CONSIDERATION IS UTILIZED FOR ACQUIRING THE NEW CAPITAL ASSET, AN AMOUNT, IF ANY, BY WHICH THE COST OF ACQUISITION OF THE NEW ASSET EXCEEDS THE AGGREGATE OF THE COST OF ACQUISITION OF THE CAPITAL ASSET TRANSFERRED AND THE COST OR ANY IMPROVEMENT MADE TO SUCH ASSET, WILL BE REGARDED AS HAVING BEEN APPLIED TO SUCH PURPOSES. 77. IN A CASE WHERE THE ASSET WHICH IS TRANSFERRED, FORMED PART OF PROPERTY HELD UNDER TRUST IN PART ONLY FOR CHARITABLE OR RELIGIOUS PURP OSES, A PROPORTIONATE AMOUNT OF THE CAPITAL GAIN WILL BE REGARDED AS HAVING BEEN APPLIE D TO CHARITABLE OR RELIGIOUS PURPOSES. THUS WHERE THE WHOLE OF THE NET CONSIDERA TION RECEIVED AS A RESULT OF THE TRANSFER IS UTILIZED IN ACQUIRING THE NEW CAPITAL A SSET, THE WHOLE OF THE 'APPROPRIATE FRACTION' OF THE CAPITAL GAIN WILL BE REGARDED AS H AVING BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES, WHILE IN A CASE WHERE ONLY A PA N OF THE NET CONSIDERATION IS UTILIZED FOR ACQUIRING THE NEW CAPITAL ASSET, SO MU CH OF THE 'APPROPRIATE FRACTION' OF THE CAPITAL GAIN AS IS EQUAL LO THE AMOUNT, IF ANY BY WHICH THE 'APPROPRIATE FRACTION' OF THE AMOUNT UTILIZED FOR ACQUIRING THE NEW ASSET EXCEEDS THE 'APPROPRIATE FRACTION' OF THE COST OF THE TRANSFERRED ASSET WILL BE REGARD ED AS HAVING BEEN APPLIED LO SUCH PURPOSES. THE 'APPROPRIATE FRACTION' IN THIS CONTEX T MEANS THE FRACTION OBTAINED BY DIVIDING THE AMOUNT OF THE INCOME WHICH, UNDER THE TERMS OF THE TRUST, IS APPLICABLE TO CHARITABLE OR RELIGIOUS PURPOSES, BY THE WHOLE OF T HE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR SUCH PURPOSES. 78. THE INSERTION OF NEW SUB-SECTION (1A) IN SECTIO N 11 TAKES EFFECT RETROSPECTIVELY FROM 1-4-1962 THE DALE OF COMMENCEMENT OF THE INCOM E-TAX ACT. 1961, AND THEREFORE, PLACES THE CONCESSION ALREADY ALLOWED UNDER EXECUTI VE ORDERS ON A LEGAL FOOTING RIGHT FROM THE DATE FROM WHICH THE REQUIREMENT OF APPLICA TION, BY CHARITABLE OR RELIGIOUS TRUSTS, OF AT LEAST 75%, OF THEIR INCOME LO CHARITA BLE OR RELIGIOUS PURPOSES DURING THE YEAR OF ACCRUAL OF SUCH INCOME WAS INTRODUCED IN TH E 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 ANOTH ER CAPITAL ASSET SCOPE OF THE EXPRESSION, - SECTION 11(1A) OF THE IN COME-TAX ACT, 1961, PROVIDES THAT WHERE A CAPITAL ASSET, BEING PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES IS TRAN SFERRED AND THE WHOLE OR ANY PART OF THE NET CONSIDERATION IS UTILIZED FO R ACQUIRING ANOTHER CAPITAL ASSET TO BE SO HELD, THEN, THE CAPITAL GAIN ARISING FROM THE TRANSFER ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 23 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 INVEST MENT 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 PE RIOD OF SIX MONTHS OR ABOVE WOULD BE REGARDED AS UTILIZATION OF THE NET C ONSIDERATION FOR ACQUIRING ANOTHER CAPITAL ASSET WITHIN THE MEANIN G OF SECTION 11(1A) OF THE INCOME-TAX ACT, 1961 [INSTRUCTION NO.883, DATE D 24.9.1975 1994) 206 ITR 138, 147 (CAL)] FROM THE ABOVE CIRCULARS ISSUED BY THE GOVERNMENT F OLLOWING PROPOSITIONS EMERGE :- (1) IT IS ONLY THE INCOME DERIVED FROM PROPERTY HEL D UNDER TRUST FOR CHARITABLE OR RELIGIOUS PURPOSES IS EXEMPT UNDER SU B-SECTION (1). (2) BECAUSE OF CERTAIN AMENDMENTS BY THE FINANCE AC T, 1970 A CHARITABLE TRUST WOULD FORFEIT EXEMPTION IF TRUST F UNDS/PROPERTY IN CORPUS ARE INVESTED IN PROHIBITED CATEGORIES, (3) IN ORDER TO SUITABLY MODIFY THE INVESTMENT POR TFOLIO AND TO AVAIL THE BENEFIT OF EXEMPTION IT WAS PROVIDED THAT IF TRUST ACQUIRES ANOTHER CAPITAL ASSET FOR THE USE AND BENEFIT OF THE TRUST BY UTILI ZING CAPITAL GAIN FROM THE TRANSFER OF PROPERTY IN THE CORPUS THEN CAPITAL GAI NS SO UTILIZED WOULD BE REGARDED AS APPLIED TO CHARITABLE OR RELIGIOUS PURP OSES OF THE TRUST. (4) IN ORDER TO GIVE EFFECT TO THIS INTENTION SUB-S ECTION (5) WAS INSERTED IN SECTION 11 THEREBY IF NET CONSIDERATION IS INVES TED IN SPECIFIED CATEGORIES AS ENUMERATED IN SUB-SECTION (5) THEN TO THAT EXTENT TRUST WOULD CONTINUE TO AVAIL EXEMPTION TO THE CAPITAL GAINS. (5) WHERE IF NET CONSIDERATION ON TRANSFER OF PROPE RTY IN THE CORPUS OF THE TRUST IS INVESTED IN F.D. IN A BANK FOR A PERIO D OF SIX MONTHS OR ABOVE THEN IT WOULD BE REGARDED AS UTILIZATION OF CONSIDE RATION FOR ACQUIRING ANOTHER CAPITAL ASSET WITHIN THE MEANING OF SECTION 11(1). THE DEPARTMENT HAS NOT DISPUTED THE INVESTMENT OF NET CONSIDERATIO N ON TRANSFER OF LAND TO SMC. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 24 (6) INVESTMENT OF SALE PROCEEDS OF THE ASSET HELD B Y THE TRUST IN F.D. IS PERMISSIBLE AS ALSO HELD BY HON. CALCUTTA HIGH COUR T IN CIT VS. HINDUSTHAN WELFARE TRUST [1993] 70 TAXMAN 93/(1994) 206 ITR 138 (CAL), AS UNDER: INVESTMENT OF SALE PROCEEDS OF SHARES IN FIXED DEP OSITS IS PERMISSIBLE INVESTMENT IN FIXED DEPOSIT MADE IN PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1981-82 OUT OF SALE PROCEEDS OF SHARES OF COMPANIES, AMOUNTED TO A CQUIRING OF ANOTHER CAPITAL ASSETS IN TERMS OF SECTION 11(1A). REINVESTMENT IN FIXED DEPOSITS OF ANY DURATION IS P ERMISSIBLE 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 SEC TION 11(1A), IS NOT IN CONSONANCE WITH THE GENERAL PRINCIPLES OF LAW AND IT CANNOT HO LD THE FIELD. ONCE A DEPOSIT IS ACCEPTED TO BE AN ASSET, THE LARGER OR LESSER DURAT ION OF THE TERM IS AN IMMATERIAL CONSIDERATION. (7) IN DIRECTOR OF INCOME-TAX (EXEMPTION) VS. D.L.F . QUTAB ENCLAVE COMPLEX MEDICAL CHARITABLE TRUST (2001) 248 ITR 004 1 (DEL) HON. DELHI HIGH COURT ALSO SUPPORTED THIS VIEW WHEN IT H ELD AS UNDER :- SECTION 11 OF THE INCOME-TAX ACT, 1961 DEALS WITH INCOME FROM PROPERTY HELD BY CHARITABLE OR RELIGIOUS PURPOSES. SUB-SECTION (1) O F 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 I NCOME. SECTION 11(1A) DEALS WITH THE GAINS ARISING FROM THE TRANSFER OF CAPITAL ASSETS H ELD BY A CHARITABLE TRUST IT STATES THAT THE CAPITAL GAINS WILL BE DEEMED TO HAVE BEEN APPLI ED TO CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT IT IS UTILIZED IN ACQUIRING A NEW CAPITAL ASSET. THE FORMS AND MODES OF INVESTING OR DEPOSITING MONEY ARE PROVIDED IN SUB-SECTION (5) OF SECTION 11. IT IS CLEAR FROM SECTION 11(5)(III) THAT DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK IS ALSO RELATABLE TO THE FORMS AND MODES OF INVESTING OR DEPOSITING THE MONEY REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2). THE EXPLANATION T O THE SUB-SECTION INDICATES WHAT ARE ENCOMPASSED BY THE EXPRESSION SCHEDULED BANK. THE EXPRESSION CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT, IT MEANS PROPE RTY OF ANY KIND HELD BY AN ASSESSEE. CERTAIN CATEGORIES OF ASSETS HAVE BEEN SPECIFICALLY EXCLUDED FROM THE MEANING OF CAPITAL ASSET. DEPOSITS IN SCHEDULED BANKS ARE NOT ONE OF THESE ENUMERATED CATEGORIES EXCLUDED FROM THE MEANING OF CAPITAL ASSET AS GIVEN IN SECTION 2(14). INVESTMENT FOR A FIXED TERM IN A SCHEDULED BANK FULFILS THE CONDITIO NS PROVIDED IN SECTION 11(1A) AS A FIXED TERM DEPOSIT, IS A CAPITAL ASSET. THE ASSESSEE-TRUST HAD RECEIVED PREMIUM AMOUNTING T O RS.20,72,500/- ON LEASING A PLOT OF LAND BELONGING TO IT. THE AMOUNT WAS DULY R EFLECTED IN THE BALANCE-SHEET. THE AO FOUND THAT THE AMOUNT WAS INVESTED IN TIME DEPOS IT WITH THE BANK AND THIS, ACCORDING TO HIM, DID NOT CONSTITUTE INVESTMENT IN A CAPITAL ASSET. IT WAS THEREFORE, CONCLUDED THAT THE ASSESSEE HAD INFRINGED THE PROVI SIONS OF SECTION 11(5) OF THE ACT AND WAS NOT ENTITLED TO ANY EXEMPTION. THE CIT(A) A ND THE TRIBUNAL HOWEVER, HELD THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION. ON FUR THER APPEAL: ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 25 HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL WAS RIGHT AND THE ASSESSEE WAS ENTITLED TO THE EXEMPTION. NO SUBSTANTIAL QUESTION OF LAW AR OSE FROM ITS ORDER. CIT (ADDL) VS. A.L.N. RAO CHARITABLE TRUST (1995) 216 ITR 697(SC). EVEN OTHERWISE WE ARE INFORMED THAT THE TRUST HAS I NVESTED A SUM OF RS.16.63 CRORES IN IDBI BANK ON 31.5.2006 AND REINV ESTED IN F.D. WITH STATE BANK OF INDIA ON 30.8.2006. THEREFORE, THE CO NDITIONS LAID DOWN IN SECTION 11(5) ARE SATISFIED. HOWEVER, FOR THE SAKE OF CONVENIENCE WE ENUMERATE VARIOUS INVESTMENT PORTFOLIOS AS PER SECT ION 11(5) SO AS TO HIGHLIGHT THAT BANK DEPOSITS ARE ONE OF SUCH SAFE A VENUE FOR INVESTMENT FOR AVAILING EXEMPTION FROM CAPITAL. THEY ARE AS UN DER :- MODES OF INVESTMENT SPECIFIED IN S. 11(5) 1. INVESTMENT IN GOVERNMENT SAVINGS CERTIFICATES/OT HER SECURITIES/ CERTIFICATES ISSUED BY CENTRAL GOVERNMENT UNDER SMA LL SAVINGS SCHEMES; 2 . DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SAVINGS BANK; 3. DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED/CO-OPE RATIVE BANK; 4. INVESTMENT IN UNITS OF THE UNIT TRUST OF INDIA ; 5. INVESTMENT IN ANY SECURITY OF THE CENTRAL/STAT E GOVERNMENT; 6. INVESTMENT IN DEBENTURES WHOSE PRINCIPAL AND INT EREST ARE FULLY AND UNCONDITIONALLY GUARANTEED BY CENTRAL/STALE GOVERNM ENT; 7. INVESTMENT OR DEPOSIT IN ANY PUBLIC SECTOR COMPA NY (PSC); SHARES OF PSC MAY BE RETAINED FOR THREE YEARS AND OTHER INVES TMENTS 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-TER M FINANCE LOR INDUSTRIAL DEVELOPMENT IN INDIA; 9. DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUED BY AN APPROVED PUBLIC COMPANY WITH MAIN OBJECT OF CARRYING ON BUSI NESS OF PROVIDING ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 26 LONG-TERM FINANCE FOR CONSTRUCTION / PURCHASE OF HO USES IN INDIA FOR RESIDENTIAL PURPOSES OR FOR URBAN INFRASTRUCTURE; 10. INVESTMENT IN IMMOVABLE PROPERTY; 11. DEPOSITS WITH THE INDUSTRIAL DEVELOPMENT BANK O F INDIA; 12. ANY OTHER PRESCRIBED FORM OR MODE OF INVESTME NT OR DEPOSIT, (FOR EXAMPLE. UNITS OF MUTUAL FUNDS REFERRED TO IN S.10(23D), IN VESTMENT BY WAY OF ACQUIRING EQUITY SHARES OF A 'DEPOSITORY' PRESCRIBED). INVESTMENT IN INDIRA VIKAS PATRA' AND 'KISAN VIKAS PATRA' ARE IN ACCORDANCE WITH THE NORMS AND MODES SPECIFIED IN SE C.11(5) CIRCULAR NO. 566, DT 17-1-1990. 14. AS POINTED OUT ABOVE INSTRUCTION NO.883 DATED 2 4.9.1975 CLARIFIES THAT DEPOSIT WITH THE BANK WOULD QUALIFY FOR EXEMPT ION AS PER SECTION 11(1A). NOW THE ONLY CONTROVERSY SURVIVES FOR ADJUD ICATION IS WHETHER CASE OF NON-USE OF LAND ASSESSEE WILL LOSE EXEMPTIO N UNDER SECTION 11(1A). FOR THIS PURPOSE WE LOOK INTO THE LANGUAGE USED BY THE LEGISLATURE IN SECTION 11(1A). THE PHRASE USED IN S ECTION 11(1A) IS WHERE, CAPITAL ASSET BEING PROPERTY UNDER TRUST WH OLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. SO FAR AS LAND ACQUIRED BY SMC IS CONCERNED, IT WAS UNDISPUTEDLY OWNED BY THE TRUST. PROPERTY IS A TERM OF WIDE IMPORT AND SUBJECT TO ANY LIMITATION OR QUALIFICATION WHICH TH E CONTEXT REQUIRE IT, SIGNIFIES EVERY POSSIBLE INTEREST WHICH A PERSON CA N ACQUIRE WHOLLY AND ENJOY. THE CAPITAL ASSET IS DEFINED UNDER SECTION 2 (14) AND IT WILL INCLUDE LAND OWNED BY THE ASSESSEE. THUS THERE IS NO DISPUT E ON THE PROPOSITION THAT LAND ACQUIRED BY SMC IS A CAPITAL ASSET AND IS A PROPERTY OWNED BY THE TRUST. THUS THE CONTROVERSY IS FURTHER REDUCED TO THE INTERPRETATION OF THE TERM HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 27 MEANING AND EXPLANATION OF WORD HELD THE TERM HELD EMBRACES TWO ITEMS. ONE IS ACTUAL P OSSESSION OF SOME SUBJECT OR PROPERTY IN WHICH LEGAL TITLE IS INVESTE D, OR RIGHT TO HOLD OR CLAIM SUCH POSSESSION. SUCH POSSESSION COULD BE ACT UAL OR CONSTRUCTIVE. THE TERM HELD ALSO CONNOTES OWNERSHIP AS WELL AS POSSESSION. THE WORD HELD CANNOT BE INTERPRETED ONLY TO MEAN IN THE SE NSE OF POSSESSION BUT WOULD ALSO MEAN AN OWNER WHO IS NOT IN ACTUAL POSSE SSION. IN SOME CASES IT HAS BEEN HELD THAT WORD HELD CONNOTES THE EXIS TENCE OF A RIGHT OR A TITLE IN THE HOLDER. IN THE PRESENT CASE THE LAND A CQUIRED BY SMC WAS UNDER LEGAL OWNERSHIP OF THE TRUST AND WAS POSSESSE D BY THE TRUSTEES ON BEHALF OF THE TRUST IN THEIR FIDUCIARY CAPACITY. THE TERM HELD HAS ALSO BEEN EXPLAINED AS TO MEAN FACTUAL MANAGEMENT. THUS WHEN AN ASSET FORMS PART OF THE PROPERTY IT IS HELD BY THE TRUSTEES FOR THE BENEFIT OF THE BENEFICIARIES AND IT IS NOT MATE RIAL 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 THE RE 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 PER SONS CALLED TRUSTEES FOR THE BENEFIT OF PERSONS OR FOR THE PURPOSES OR OBJEC TS 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 LEG ALLY OWNED BY THE TRUST. SINCE THE TERM THE PROPERTY HAS BEEN INTERPRETED IN WIDEST POSSIBLE TERMS EVEN THE BUSINESS OR THE ORGANIZATION ITSELF HAS BE EN TREATED AS PROPERTY HELD UNDER TRUST. IN CWT V. PHIROZSHA PCSTANJI [1974| 096 ITR 0185[GUJ] HON. GUJARAT HIGH COURT HAS HELD AS UNDER :- ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 28 IN SECTION 21(1) OF THE WEALTH-TAX ACT, 1957. THE WORD ' HELD ' ; WHEN USED IN REFERENCE TO RECEIVER OR MANAGER, CANNOT INCLUDE TH E CONCEPT OF VESTING, FOR IT IS CLEAR LAW THAT THE PROPERTY DOES NOT VEST IN A RECEIVER O R MANAGER. THE RECEIVER OR MANAGER ONLY MANAGES THE PROPERTY ON BEHALF OF OTHERS AND, THEREFORE, THE WORD ' HELD ' IN THAT CONTEXT MUST MEAN FACTUAL MANAGEMENT. ON A PLAIN GR AMMATICAL CONSTRUCTION OF THE LANGUAGE OF SECTION 21(1), WHEN AN ASSET FORMS PART OF THE TRUST PROPERLY WHICH IS SUBJECT TO THE TRUST, IT IS HELD BY (HE TRUSTEE FOR THE BENEFIT OF THE BENEFICIARY AND IT IS NOT MATERIAL TO THIS CONCEPT WHETHER IT IS HELD BY THE TRUSTEE IN HIS OWN NAME OR IS HELD BY HIM IN THE NAME OF ANOTHER. THE TRUST PROPERTY W OULD BE HELD BY THE TRUSTEE, THOUGH IN THE NAME OF ANOTHER, FOR THE BENEFIT OF THE BENE FICIARY. THE TEST IS: DOES THE ASSET FORM PART OF THE TRUST PROPERTY ? IF IT DOES IT MUS T BE SAID TO BE HELD BY THE TRUSTEES FOR THE BENEFIT OF THE BENEFICIARIES AND THE ASSESSEE I S LIABLE LO BE ASSESSED TO WEALTH-TAX IN RESPECT OF THE VALUE OF THE LIFE INTEREST OF THE BENEFICIARIES IN THE GOVERNMENT SECURITIES UNDER SECTION 21(1) OF THE ACT EVEN THOU GH THEY STOOD IN THE NAMES OF THE BENEFICIARIES OR OTHERS. MEANING OF PROPERTY HELD UNDER TRUST WHOLLY FOR CH ARITABLE OR RELIGIOUS PURPOSES THE TERM HELD WHOLLY FOR CHARITABLE AND RELIGIOUS P URPOSES WOULD MEAN THAT PROPERTY IN QUESTION IS NOT ASSIGNED TO ANY OT HER PURPOSE OR USE DIRECTLY OR INDIRECTLY EITHER IN THE OBJECTS CLAUSE OF THE TRUST OR BY THE TRUSTEES IN PRACTICE. ASSIGNING OF CORPUS I.E. CAPI TAL ASSET WHOLLY FOR THE PURPOSE OF CHARITABLE WORK AND NOT ASSIGNING FOR AN Y NON-CHARITABLE PURPOSE WOULD BE SUFFICIENT COMPLIANCE OF PROVISION S OF SECTION 11(1A). THE CIRCULAR NO.72 OF THE BOARD FURTHER SUPPORTS TH IS PROPOSITION. THE ASSIGNER PARTLY ASSIGNS THE PROPERTY FOR CHARITABLE WORK AND PARTLY FOR NON-CHARITABLE WORK OR THE PROPERTY AFTER ASSIGNING OR ACQUISITION IS PARTLY ASSIGNED TO CHARITABLE WORK AND PARTLY TO NON-CHAR ITABLE WORK THEN ON TRANSFER OF SUCH ASSET, PROPORTIONATE EXEMPTION TO THE EXTENT ASSET IS ASSIGNED FOR CHARITABLE WORK WOULD BE AVAILABLE AND NO EXEMPTION TO CAPITAL GAIN IN RESPECT OF THAT PORTION THEREOF WHI CH ARISES FROM THAT PART OF THE PROPERTY WHICH IS ASSIGNED FOR OR HELD FOR N ON-CHARITABLE PURPOSES WOULD BE AVAILABLE. IT IS NOT THE CASE THAT PASSIVE HOLDING OF THE LAND OR NON USE OF THE LAND WOULD MEAN THAT IT IS ASSIGNED OR HELD FOR NON- ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 29 CHARITABLE PURPOSES. NON-USE OF THE LAND OR PASSIVE NESS OF THE LAND IS NOT EQUIVALENT TO ITS HOLDING FOR NON-CHARITABLE PURPOS ES WHICH ALONE CAN FORFEIT THE EXEMPTION AS PER SUB-SECTION (1A) OF SE CTION 11 AND CIRCULAR NO.72 DATED 6.1.1972. 15. THUS THE ARGUMENT OF THE DEPARTMENT THAT LAND S HOULD BE PUT TO USE FOR GETTING EXEMPTION FROM CAPITAL GAINS IS NOT COR RECT. AS WE HAVE SEEN ABOVE, THE WORD WHOLLY RELATES TO AND QUALIFIES T HE WORD PURPOSE. IF THE TRUST IS ESTABLISHED FOR CHARITABLE OR RELIGIOU S PURPOSE AND THERE IS NO OTHER OBJECT FOR WHICH PROPERTY OF THE TRUST IS UTI LIZED THEN PROPERTY OF THE TRUST SO HELD AND THEREAFTER SO TRANSFERRED CAN ONL Y GIVE RISE TO INCOME/CAPITAL GAINS WHICH HAS TO BE CONSIDERED WIT HIN THE PROVISIONS OF SECTION 11(1) AND 11(1A) ONLY. THE INCOME OR CAPITA L GAINS FROM THE PROPERTY HELD UNDER THE TRUST CAN BE DENIED EXEMPTI ON ONLY TO THE EXTENT THE PROPERTY IS ASSIGNED OR USED OR HELD FOR ANY NO N-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 PA SSIVE CANNOT BE INTERPRETED TO MEAN THAT IT WAS USED OR ASSIGNED TO NON-CHARITABLE WORK. SINCE IN THE PRESENT CASE THE DEPARTMENT HAS ONLY A LLEGED NON-USE FOR CHARITABLE PURPOSE AND THERE IS NO MATERIAL ON RECO RD THAT THE LAND WAS USED FOR NON-CHARITABLE WORK, WE HOLD THAT ASSESSEE CANNOT BE DENIED EXEMPTION OF THE CAPITAL GAINS IN ACCORDANCE WITH P ROVISIONS OF SECTION 11(1A) READ WITH SECTION 11(5). ACCORDINGLY, WE HOL D THAT THE ASSESSEE IS ENTITLED TO EXEMPTION FROM THE CAPITAL GAINS AS IT HAS COMPLIED WITH THE PROVISIONS OF SECTION 11(5). THE APPEAL FILED BY TH E ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO.1306/AHD/2010 ASST. YEAR 2007-08 30 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 17.9.10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 30/8/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..