DCIT, JHUNJHUNU V. ANAND LAL PODDAR TRUST, JHUNJHUNU

ITA 200/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54245 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Assessee Lawyers: H M SINGHVI
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Reasonable cause
• Section: 10B; 12; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 200/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: AAATT 6532 E THE DCIT VS. M/S. ANANDIL LAL PODDAR TRUST JHUNJHUNU CIRCLE SETH G.B. PODDAR COLLEGE JHUNJHUNU NAWALGARH, JHUNJHUNU (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JOHRI ASSESSEE BY: SHRI H.M. SINGHVI DATE OF HEARING: 29-09-2011 DATE OF PRONOUNCEMENT:14-10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A)-III, JAIPUR DATED 30-12-2010 FOR THE AS SESSMENT YEAR 2007-08. 2.1 THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN:- (I) ALLOWING CLAIM OF EXEMPTION U/S 11 O THE INCOME TAX ACT TO THE APPLICANT TRUST AND THEREAFTE R DELETING THE ADDITION OF RS. 6,67,101/- MADE BY THE AO 2 ON ACCOUNT OF DONATION MADE TO OTHER SIMILAR TRUST , WITHOUT APPRECIATING THE FULL FACTS AS NARRATED BY THE AO. (II) DIRECTING THE AO TO TREAT THE INCOME OF RS. 37,11,053/- ANY OTHER INCOME AFTER CONSIDERING APPELLANTS CLAIM FOR EXEMPTION U/S 11 OF THE INCOM E TAX ACT AS AGAINST ASSESSED BY THE AO UNDER THE LON G TERM CAPITAL GAIN AS THE APPELLANT TRUST NOT FULFIL L THE CONDITIONS OF CAPITAL GAIN BEING EXEMPT U/S 11(1A). 2.2 THE ASSESSEE FILED THE RETURN ON 18 TH JAN. 2008. THE AO IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE WAS REQUIRED TO FIL E THE RETURN DURING THE PERIOD ALLOWABLE U/S 139(1) OF THE ACT. SINCE THE A SSESSEE HAS FILED THE RETURN BELATEDLY, THEREFORE, THE AO INITIATED THE P ENALTY PROCEEDINGS U/S 272A(2)(D) OF THE ACT. ACCORDING TO THE AO, FORM NO 10B IS REQUIRED FOR CLAIMING DEDUCTION U/S 11 OF THE ACT. SINCE FORM NO . 10B WAS NOT FILED WITHIN THE PERIOD ALLOWABLE U/S 139(3) OF THE ACT, THEREFORE, THE AO HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION 11 O F THE ACT. 2.3 BEFORE THE LD CIT(A), IT WAS STATED THAT THE AD DL. CIT, JHUNJHUNU HAD DROPPED THE PENALTY PROCEEDINGS INITIATED U/S 272A( 2)(D) OF THE ACT AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE FOR NOT FILING THE RETURN WITHIN THE TIME ALLOWED U/S 139(1) OF THE ACT. IT WAS THER EFORE, SUBMITTED BEFORE THE LD CIT(A) THAT DELAY IN FORM NO. 10B HAS BEEN C ONSIDERED ON ACCOUNT OF REASONABLE CAUSE AND THEREFORE, THE AO WAS NOT JUSTIFIED IN ALLOWING 3 EXEMPTION U/S 11 OF THE ACT. BEFORE THE LD CIT(A), THE ASSESSEE ALSO RELIED UPON THE FOLLOWING DECISIONS AND THE INSTRUCTIONS O F THE BOARD TO SHOW THAT FORM NO. 10B CAN BE FILED WITH THE RETURN U/S 139(4 ) OF THE ACT. 1. INSTRUCTION IN F.NO.267/482/77-IT(PART) DATED FE B.9, 1878 WHEREIN THE BOARD STATED THAT EXEMPTION U/S 11 AND 12 OF ACT MAY BE NOT BE DENIED, MERELY ON ACCOUNT OF DEL AY IN FURNISHING THE AUDITORS REPORT AND THE AO SHOULD R ECORD THE REASON FOR ACCEPTING THE BELATED AUDIT REPORT. 2. CIT VS SHAHZEDANAND CHARITY TRUST, 228 ITR 292 (PUNJAB) 3. CIT VS DEVRADHAN MADHAVIAL GENDA TRUST, 230 ITR 714 (M.P.) 4. CIT VS ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION, 285 ITR 147 (A.P.) 5. PAPER PRODUCTS LTD. VS CIT,247 ITR 128 2.4 FROM THE ABOVE DECISIONS, THE LD CIT(A) WAS OF THE VIEW THAT FILING OF AUDIT REPORT IS DIRECTORY AND NOT MANDATORY. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS HELD THAT TRUST IS ENTI TLED EXEMPTION U/S 11 OF THE ACT AFTER OBSERVING AS UNDER:- 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE LD.AR. ON PERUSAL OF THE REL EVANT RECORDS, I FIND THAT THERE IS NO DISPUTE REGARDING THE FACT THAT THE APPELLANT TRUST WAS REQUIRED TO FILE ITS RETURN OF INCOME OF THE 4 PROVISIONS OF SECTION 139(4A)/ 139(1) OF THE INCOME TAX ACT. FURTHER THERE IS ALSO NO DISPUTE REGARDING THE FACT THAT THE APPELLANT FILED ITS RETURN OF INCOME ON 18-01-2008, WHICH WAS BEYOND THE TIME LIMIT PRESCRIBED U/S 139(1) OF THE INCOME TAX ACT. HOWEVER, THE SAID RETURN OF INCOME WAS FILED W ELL WITHIN THE TIME PRESCRIBED U/S 139(4) OF THE INCOME TAX AC T AND THEREFORE, IT WAS A VALID RETURN OF INCOME. IN ADDI TION, IT IS SEEN THAT THE APPELLANT HAD EXPLAINED THE REASONS FOR TH E DELAY IN FILING THE RETURN OF INCOME. IN THIS REGARD, IT IS ALSO OBSERVED THAT THE SAID REASONS WEE ACCEPTED BY THE LD. ADDL CIT, JHUNJHUNU RANGE AND THEREFORE, THE PENALTY PROCEEDI NGS INITIATED U/S 272A(2)(E) OF THE INCOME TAX ACT IN T HE APPELLANTS CASE WERE DROPPED BY HIM. FURTHER, AS F AR AS THE ISSUE OF THE DELAYED FILING OF THE AUDIT REPORT BY THE APPELLANT IS CONCERNED, I FIND THAT THE APPELLANT HAD FILED THE REQUIRED AUDIT REPORT IN FORM 10B, ALONGWITH THE RETURN OF INCOME, ON18-01- 2008, WHICH WAS WELL BEFORE THE INITIATION OF THE A SSESSMENT PROCEEDINGS (ON 29-04-2008) AND THE COMPLETION OF T HE ASSESSMENT PROCEEDINGS (ON 30-12-2009). IN THIS REG ARD, IT IS OBSERVED THAT AS HELD BY VARIOUS HON'BLE HIGH COURT S, THE REQUIREMENT OF FILING OF THE AUDIT REPORT IN FORM 1 0B IS DIRECTORY, AND NOT MANDATORY, IN NATURE AND HENCE, IF THE SAME IS FILED EVEN DURING THE ASSESSMENT PROCEEDINGS, IT WOULD BE SUFFICIENT COMPLIANCE TO THE REQUIREMENT OF SECTION 12A(B) OF INCOME TAX ACT. THIS VIEW IS SUPPORTED BY THE VARIO US CASE LAWS RELIED UPON SUPRA BY THE LD.AR. THEREFORE, CON SIDERING THE ENTIRE RELEVANT FACTS AND CIRCUMSTANCES OF THIS CASE, IT IS 5 HELD THAT THE APPELLANT TRUST WAS ENTITLED TO THE C LAIM OF EXEMPTION U/S 11 OF THE INCOME TAX ACT. HENCE, THE AO IS DIRECTED TO CONSIDER THE APPELLANTS CLAIM FOR EXEM PTION U/S 11 OF THE INCOME TAX ACT AND TO ACCORDINGLY RE-COMPUTE THE TOTAL INCOME OF THE APPELLANT. CONSEQUENTLY, THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 2.5 WE HAVE HEARD BOTH THE PARTIES. AS PER SECTION 12A(B), THE ASSESSEE IS REQUIRED TO GET THE ACCOUNTS AUDITED AND FURNISH THE REPORT ALONGWITH RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. IT IS NOWHERE MENTIONED THAT SUCH FIRM IS TO BE FURNISHED ALONGWITH RETURN OF INCOME TO BE FILED WITHIN THE TIME PRESCRIBED U/S 139(1) OF THE ACT. T HE REVENUE HAS ACCEPTED THE RETURN U/S 139(4) OF THE ACT. IF THE RETURN IS VALID THEN THE ASSESSEE WAS JUSTIFIED IN FILING THE AUDIT REPORT IN FORM NO 10B ALONGWITH RETURN OF INCOME. WE HAVE ALSO CONSIDERED THE RELEVANT CASE L AWS AND FEEL THAT THE LD CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW E XEMPTION U/S 11 OF THE INCOME TAX ACT. 3.1 THE SECOND GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS. 6 ,67,101/- WHICH REPRESENTED THE DONATION MADE TO OTHER TRUST. 3.2 THE LD CIT(A) IN PARA 4.3 OF HIS ORDER HAS HELD AS UNDER:- 6 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD.AR. ON PERUSAL OF THE RELEVANT RECORDS, IT IS OBSERVED THAT THE LD. AO HAD MADE TH E IMPUGNED DISALLOWANCE ONLY ON THE GROUND THAT THE APPELLANTS CLAIM FOR EXEMPTION U/S 11 OF THE INCOM E TAX ACT HAD BEEN DENIED. HOWEVER, AS PER DISCUSSION CONTAINED IN PARA 23 ABOVE, I HAVE HELD THAT THE AP PELLANT IS ENTITLED TO CLAIM EXEMPTION U/S 11 OF THE ACT AN D DIRECTED THE AO TO ACCORDINGLY RECOMPUTE THE APPELLANTS TOTAL INCOME. THEREFORE, THE AO IS DIRE CTED TO ALLOW THE CLAIMED EXPENSES OF RS. 6,67,101/- WHILE RECOMPUTING THE APPELLANTS TOTAL INCOME. 3.3 WE HAVE HEARD BOTH THE PARTIES. IF THE ASSESSEE TRUST PAYS THE DONATION TO THE TRUST WHICH IS HAVING THE SIMILAR OBJECTS TH EN THE PAYMENTS SO MADE IS APPLICATION OF INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS INDIAN NATIONAL THEATRE TRUST, 305 ITR 149 HAS HEL D THAT THE AMOUNT ADVANCED TO ANOTHER TRUST IS APPLICATION OF INCOME FOR CHARITABLE PURPOSES. WE THEREFORE, FEEL THAT THE LD CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF RS. 6,67,101/- 3.4 THE LAST GRIEVANCE OF THE REVENUE IS THAT THE L D CIT(A) HAS ERRED IN ALLOWING EXEMPTION THOUGH THE ASSESSEE HAS NOT APPL IED THE CAPITAL GAIN FOR ACQUIRING NEW ASSETS. 7 3.5 BEFORE THE AO, THE ASSESSEE CLARIFIED THAT IT G AVE THE ADVANCE OF RS. 18.50 LACS TO M/S. S.S. CONSTRUCTION CO. FOR CONSTR UCTION OF BOYS HOSTEL BUILDING FROM WHICH THE AO INFERRED THAT THE ASSESS EE HAS FAILED TO INVEST IN OTHER ASSETS AS PER SECTION 11(1A) OF THE ACT. 3.6 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE HELD THAT THE CAPITAL GAIN SHOULD BE SET OFF AGAINST LOS S UNDER OTHER HEADS AS DIRECTED THE AO TO ALLOW EXEMPTION U/S 11 OF THE AC T AFTER OBSERVING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE LD. LD. AR. ON PERUSAL OF THE RELEVANT DETAILS/ DOCUMENTS, I FIND SUBSTANCE I N THE CONTENTIONS/ ARGUMENTS RAISED BY THE LD. AR IN SUPP ORT OF GROUND NO. 4 OF THE APPEAL . IN THIS REGARD, IT IS OBSERVED THAT THE APPELLANT SPENT AN AMOUNT OF RS. 18.50 LACS TOWARDS CONSTRUCTION OF BOYS HOSTEL BUILDING AND AN AMOUNT OF RS. 40,29,265/- TOWARDS CONSTRUCTION O F GIRLS HOSTEL BUILDING TO RS. 58,79,265/- DURING TH E YEAR (AS NOTED BY THE LD. AO ON PAGE 2 OF THE ASSESSMENT ORDER) VIS A VIS, THE LONG TERM CAPITAL GAIN OF RS. 37,11,053/- EARNED DURING THIS YEAR. THEREFORE, ON THESE FACTS, THERE IS MERIT IN THE CONTENTION OF LD. AR A ND THAT LD. AO WAS NOT JUSTIFIED IN HOLDING THAT THE APPELL ANT TRUST HAD AILED TO INVEST IN OTHER ASSETS AS PER SE CTION 11(1A) OF THE INCOME TAX ACT AND IN HOLDING THAT TH E 8 CAPITAL GAIN WAS SEPARATELY TAXABLE. FURTHER, I FIN D MERIT IN THE OTHER CONTENTION OF THE LD. AR ALSO THAT EVE N IF THE LONG TERM CAPITAL GAINS WERE UTIILISED ON THE OBJEC T OF THE TRUST, IT FULFILLED THE REQUIREMENT OF THE ACT, AND THAT THE ENTIRE LONG TERM CAPITAL GAINS WERE UTILIZED TO WARDS THE OBJECT OF THE TRUST WAS EVIDENT FROM THE FACT T HAT THE ENTIRE INCOME OF THE TRUST, AMOUNTING TO RS. 3,38,37,509/- I THIS YEAR. IN ADDITION, ON GOING TH ROUGH THE RELEVANT SALE DEEDS, I FIND THAT THE APPELLANT TRUST HAS SOLD THE TRUST PROPERTY, IN QUESTION, TO VARIOUS PE RSONS, NAMELY SHRI VISHWANATH SHARMA, SMT. KAMLA DEVI SHARMA, SMT. NIRMALA DEVI SHARMA, SHRI MOHAN SINGH SHEKHAWAT, SHRI JITENDRA SINGH SHEKHAWAT, SHRI RAKE SH SINGH RATHORE, SMT. SHARDA DEVI SHARMA, SHRI PRATAP SINGH RATHORE, SHRI OM PRAKASH GUPTA, SMT. UMMEDI DEVI JANGID, SMT. KIRAN RAJAWAT AND SHRI VINOD KUMA R JAIN, BY WAY OF OPEN PUBLIC AUCTION. IT IS NOTED TH AT THE AFORESAID PROPERTIES WERE SOLD BY THE APPELLANT TRU ST THROUGH SHRI KAMAL KUMAR BHAGERIA, WHO WAS THE DULY APPOINTED POWER OF ATTORNEY HOLDER OF THE APPELLANT TRUST. FURTHER, IT IS ALSO NOTED THAT THE SAID SHRI KAMAL KUMAR BHAGERIA AND SHRI S.K. BHAGERIA, CA OF M/S. S.K. BHAGERIA AND ASSOCIATES, THE CHARTERED ACCOUNTANTS AND AUDITOR OF THE TRUST, WERE TWO DIFFERENT PERSONS. THEREFORE, CONSIDERING ALL THE ABOVE MENTIONED FACT S, THE AO IS DIRECTED TO TREAT THE AFOREMENTIONED LONG TE RM CAPITAL GAIN ALSO AS ANY OTHER INCOME OF THE APPELL ANT 9 TRUST, WHICH HAS BEEN UTILIZED ON THE OBJECT OF THE TRUST, WHILE RE-COMPUTING THE APPELLANTS TOTAL INCOME, AF TER CONSIDERING APPELLANTS CLAIM FOR EXEMPTION U/S 11 OF THE INCOME TAX ACT (AS DIRECTED IN PARA 2.3 ABOVE). CONSEQUENTLY, GROUND NO. 4 OF THE APPELLANT IS TREA TED AS ALLOWED. HOWEVER, AS GROUND NO. 4 HAS BEEN ALLOWED, THE ALTERNATIVE GROUND NO. 5 OF THE APPEAL HAS BECOME INFRUCTUOUS AND HENCE, THE SAME IS DISMISSED . 3.7 WE HAVE HEARD BOTH THE PARTIES. SECTION 11(1A) SPECIFIES THE COMPUTATION OF EXEMPTION IN CASE THE TRUST HAS EARN ED CAPITAL GAIN. THE NET CONSIDERATION IF UTILIZED FOR ACQUIRING NEW CAPITAL ASSETS THEN WHOLE OF THE CAPITAL GAIN WILL BE EXEMPTED. IN CASE PART OF THE NET CONSIDERATION IS UTILIZED FOR ACQUIRING NEW CAPITAL ASSETS THEN SO M UCH OF CAPITAL GAIN AS IS EQUAL TO THE AMOUNT ,IF ANY, BY WHICH AMOUNT SO UTI LIZED EXCEEDS THE COST OF THE TRANSFERRED ASSETS IS TO BE CONSIDERED AS DEEME D TO HAVE APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. WE HAVE CONSIDERE D THE ISSUE IN THE CASES OF KRISHI UPAJ MANDI SAMITI IN ITA NO. 560 & 561/JP /20/2010 DATED 06- 01-2011 THAT INCOME IN THE CASE OF THE TRUST IS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND THE INCOME UNDER DIFFERE NT HEADS OF THE INCOME TAX ACT IS NOT RELEVANT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE FOLLOWING DECISIONS. 10 8.. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V TRUSTEE OF H.E.H. THE NIZAM SUPPLEMENTAL RELIGIOUS ENDORSEMENT TRUST 127 ITR 378 HAD AN OCCASION TO CONSIDER AS TO HOW THE INCOM E OF THE TRUST IS TO BE COMPUTED. IT WAS STATED THAT THE COMMERCIAL OR AMOU NTING PROFITS OR ACTUAL PROFITS EARNED BY THE ASSESSEE ARE TO BE CALCULATED ON COMM ERCIAL PRINCIPLES. IT IS NOT THE TOTAL INCOME AS WOULD BE ASSESSED BY THE A.O. IS NO T RELEVANT FOR THE PURPOSE OF INVESTING THE FUNDS OF THE TRUST OR ASSESSING THE I NCOME OF THE TRUST. IT IS THE ACCOUNTS OF THE TRUST ALONE WILL HAVE TO BE CONSIDE RED. PAYMENT OF INCOME TAX AND WEALTH TAX WERE EXPENSES INCIDENTAL TO THE CARR YING OUT OF CHARITABLE PURPOSE OF THE TRUST. UNDER NORMAL PROVISIONS OF COMPUTATIO N OF BUSINESS INCOME, INCOME TAX IS TO BE ADDED WHILE COMPUTING TOTAL INCOME. 9. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V RAO BAHADUR CALAVALA CUNNAN CHETLY CHARITIES 135 ITR 48 5 HAS HELD THAT IN CASE OF TRUST, INCOME IS TO BE ARRIVED AT IN COMMERCIAL MAN NER WITHOUT REFERENCE TO SECTION 14. ACCUMULATION TO BE DETERMINED OUT OF S UCH INCOME. THE HONBLE MADRAS HIGH COURT AT PAGE 492 OBSERVED AS UNDER :- SECTION 11 CONTEMPLATES AN APPLICATION OF THE INCO ME FOR CHARITABLE PURPOSE. THE CHARITY CAN ACCUMULATE 25 P ER CENT. OF THE INCOME. THE APPLICATION AS WELL AS THE ACCUMULATION HAS NECESSARILY TO BE THE INCOME AS ACCOUNTED FOR IN THE ACCOUNTS, AND NO T AS COMPUTED UNDER THE I.T.ACT, SUBJECT OF COURSE TO WHAT IS PROVIDED IN SUB-S. (4) OF S. 11. THIS IS BECAUSE THE ACT SOMETIMES DEALS WITH INCOME ATTRIBUTED BY SOME STATUTORY FICTION. THERE CAN BE NO DISTRIBUTIO N OR ACCUMULATION OF WHAT IS TAXED UNDER SOME FICTION. THE SUPREME COURT IN CIT V. BIPINCHANDRA MAGANLAL & CO. LTD. [1961] 41 ITR 290 (SC) CONSIDERED THE QUESTION WHETHER THE EXPRESSION SMALLNESS OF P ROFITS HAS TO BE UNDERSTOOD IN THE SENSE OF SMALLNESS OF ASSESSABLE INCOME. IT WAS POINTED OUT THAT A COMPANY NORMALLY DISTRIBUTES DIVIDENDS O UT OF ITS BUSINESS PROFITS AND NOT OUT OF ITS ASSESSABLE INCOME AND TH AT EVEN THOUGH THE ASSESSABLE INCOME OF A COMPANY MAY BE MUCH, THE COM MERCIAL PROFITS MAY BE SO SMALL THAT COMPELLING DISTRIBUTION OF THE DIFFERENCE BETWEEN THE BALANCE OF THE ASSESSABLE INCOME REDUCED BY THE TAX ES PAYABLE AND THE AMOUNT DISTRIBUTED AS DIVIDEND WOULD REQUIRE THE CO MPANY TO FALL BACK EITHER UPON ITS RESERVES OR UPON ITS CAPITAL WHICH IN LAW IT COULD NOT DO. APPLYING THE SAME REASONING, THE EXPRESSION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR PURPOSE OF ASSESSEEMEN T TO TAX BY THE 11 APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GI VING OR DENYING DEDUCTION. THAT INCOME CANNOT BE UNDERSTOOD IN THE SENSE OF WHAT IS ARRIVED AT FOR THE PURPOSE OF INCOME-TAX WOULD BE C LEAR IF WE PAY SOME ATTENTION TO S. 10. FOR INSTANCE, S. 10(1) EXEMPTS AGRICULTURAL INCOME. IT IS NOT NECESSARY TO FIND OUT WHAT THE AGRICULTURAL INC OME IS. IT IS ENOUGH IF THE AGRICULTURAL INCOME AS A CATEGORY IS EXCLUDED. THERE IS NO NEED OR SCOPE TO ARRIVE AT THE INCOME IN THE MANNER CONTEMP LATED BY TH I.T.ACT. OTHER INSTANCES CAN BE MULTIPLIED. TAKING INTO ACCO UNT THE PURPOSE FOR WHICH THE CONDITIONS OF S. 11(1)(A) ARE IMPOSED, IT WOULD BE CLEAR THAT WE HAVE TO CONSIDER THE INCOME AS ARRIVED AT IN THE CO NTEXT OF WHAT IS AVAILABLE IN THE HANDS OF THE ASSESSEE, SUBJECT OF COURSE TO ANY ADJUSTMENT FOR EXPENSES EXTRANEOUS TO THE TRUST. IF THE EXPRES SION INCOME IS SO UNDERSTOOD, THEN WE HAVE TO TAKE THE ACCOUNTS OF TH E ASSESSEE WITH REFERENCE TO THE RECEIPTS AND DEDUCT THEREFROM THE EXPENSES NECESSARY FOR EARNING OR LOOKING AFTER THAT INCOME. THE NET AMOUN T THAT REMAINS WOULD BE AVAILABLE FOR DISTRIBUTION OR APPLICATION FOR CH ARITABLE PURPOSE. IN APPLYING THE INCOME FOR CHARITABLE PURPOSES, EVEN C APITAL EXPENDITURE MAY BE INCURRED. THEREFORE, THE NATURE OF THE EXPEN DITURE IN THE HANDS OF THE ENTITY WHICH RECEIVES THE MONEY IS NOT THE CRIT ERION. SO LONG AS THE ASSESSEE DISBURSES THE AMOUNT FOR CHARITABLE PURPOS ES, WHETHER THE AMOUNTS ARE UTILIZED FOR CAPITAL OR REVENUE PURPOSE S BY THE CHARITY CONCERNED, THE ASSESSEE WOULD HAVE COMPLIED WITH TH AT PART OF THE REQUIREMENT OF S. 11, NAMELY APPLICATION OF THE INC OME FOR CHARITABLE PURPOSES. THE AUTHORITIES WILL HAVE TO FIND OUT AS TO WHETHER THEY ARE REALLY CHARITABLE PURPOSES OR NOT. SUBJECT TO SUCH EXAMINATION, THE APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES W ILL HAVE TO BE EXCLUDED AND IT IS ONLY THE BALANCE THAT WOULD REQU IRE EXAMINATION FOR FINDING OUT WHETHER THE ASSESSEE HAS COMPLIED WITH THE RULE OF ACCUMULATION TO THE EXTENT OF RS.10,000 OR 25 PER C ENT. OF THE INCOME, WHICHEVER IS HIGHER. 10. THE HONBLE MADRAS HIGH COURT IN THE CASSE OF C IT VS.ESTATE OF V.L.ETHIRAJ 136 ITR 12 HAD AN OCCASION TO CONSIDER AS TO WHETHER FOR THE PURPOSE OF COMPUTING THE ACCUMULATI ON IN EXCESS OF 25% OF THE TOTAL INCOME AS LAID DOWN IN SECTION 11(1)(A ) OF THE I.T.ACT IS TO BE DONE UNDER THE APPROPRIATE HEADS OF INCOME OF THE A CT. THE HONBLE HIGH COURT HELD THAT COMPUTATION SHOULD BE IN THE NORMAL COMMERCIAL MANNER AND NOT IN ACCORDANCE WITH SECTION 14 OF THE ACT. 13. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V GANGA CHARITY TRUST FUND 162 ITR 612 HAS AN OCCASIO N TO CONSIDER AS TO WHETHER INCOME TAX LIABILITY IS TO BE ALLOWED AS DE DUCTION UNDER SECTION 12 11(1)(A) OF THE I.T.ACT. THE HONBLE HIGH COURT TOO K THE VIEW THAT DETERMINING THE INCOME WHICH COULD BE ACTUALLY APPL IED OR ACCUMULATED FOR THE PURPOSE OF THE TRUST UNDER SECTION 11(1)(A) OF THE ACT, ALL OUTGOINGS INCLUDING THE OUTGOING IN THE NATURE OF P AYMENT OF INCOME TAX MUST BE DEDUCTED. FOR THIS THE HONBLE HIGH COURT R EFERRED TO THE DECISIONS OF HONBLE ANDHRA PRADESH HIGH COURT AND MADRAS HIGH COURT IN WHICH IT HAS BEEN HELD THAT PROFIT IS TO BE ASCE RTAINED ON COMMERCIAL MANNER. 15. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CI T V SHETH MANILAL RANCHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATION AND TH E DIFFERENCE BETWEEN TOTAL INCOME CHARGED AND INCOME TO BE COMPUTED UNDE R CHAPTER-III. THE HONBLE HIGH COURT OBSERVED AS UNDER :- WHETHER DEPRECIATION HAS TO BE ALLOWED AS A NECESS ARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION WA S THE QUESTION WHICH CAME UP BEFORE THE KARNATAKA HIGH COURT IN CIT V. S OCIETY OF THE SISTERS OF ST.ANNE [1984] 146 ITR 28. NOTICING THE DIFFEREN CE BETWEEN THE WORD INCOME AND THE EXPRESSION TOTAL INCOME AND THE NECESSITY FOR PROVIDING DEPRECIATION IN ORDER TO MAINTAIN CORRECT ACCOUNTS, THE HIGH COURT HELD THAT THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF THE CHARITABLE INSTITUTION HAS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSE S. SAME VIEW HAS BEEN TAKEN BY THE MADHYA PRADESH HIGH COURT IN CIT V. RA IPUR PALLOTTINE SOCIETY [1989] 180 ITR 579. IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARI TIES [1992] 135 ITR 485, THE MADRAS HIGH COURT WAS REQUIRED TO CONSIDER WHETHER, FOR THE PURPOSE OF COMPUTING ACCUMULATION IN EXCESS OF 25 PER CENT, AS LAID DOWN IN SECTION 11(I)(A) OF THE ACT, INCOME HAS TO BE COMPUTED UNDER THE VARIOUS HEADS ENUMERATED IN THE INCOME-TA X ACT. IT HELD THAT THE INCOME FROM THE PROPERTIES HELD UNDER TRUST WOU LD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT CLASSIFI CATION UNDER THE VARIOUS HEADS SET OUT IN SECTION 14. IT HELD THAT T HE EXPRESSION INCOME HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENS E AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR THE PURPOSE O F ASSESSMENT TO TAX BY APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GI VING OR DENYING DEDUCTION. IT OBSERVED THAT THE COMPUTATION UNDER T HE DIFFERENT CATEGORIES OR HEADS ARISES ONLY FOR THE PURPOSES OF ASCERTAINI NG THE TOTAL INCOME FOR THE PURPOSES OF CHARGE. THOSE PROVISIONSD CANNOT BE INTRODUCED TO FIND OUT WHAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST TO BE 13 EXCLUDED FROM THE TOTAL INCOME IS, FOR THE PURPOSE OF THE EXEMPTIONS UNDER CHAPTER III. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN BY THE KARNATAKA, MADHYA PRSDESH AND MADRAS HIGH COURTS. W E, THEREFORE, ANSWER BOTH THE QUESTIONS REFERRED TO US IN THE AFF IRMATIVE AND AGAINST THE REVENUE. 3.8 HENCE, IN THE INSTANT CASE, ONE CANNOT CONSIDER THE APPLICATION OF INCOME FOR OTHER PURPOSES TO BE CONSIDERED FOR NOT TAXING THE CAPITAL GAIN. THERE IS SPECIFIC PROVISIONS U/S 11(1A) OF THE ACT. IN CASE THE ASSESSEE HAS UTILIZED NET CONSIDERATION FOR PURPOSE OF ACQUIRING THE NEW ASSETS THEN THE EXPENDITURE SO MADE IS TO BE CONSIDERED FOR PURPOSE OF APPLICATION OF INCOME FOR THE CHARITABLE PURPOSES. VIDE LETTER DAT ED 10 TH NOV. 2009 ADDRESSED TO THE ACIT, THE ASSESSEE HAS STATED THAT A SUM OF RS. 61,35,930/- HAS BEEN UTILIZED FOR CONSTRICTION OF SCHOOL BUILDI NG AND HOSTEL BUILDING. HOWEVER, THE AO IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE HAS MADE ADVANCE FOR THE CONSTRUCTION. THE AO WILL VERIFY IN RESPECT OF ACQUISITION OF NEW ASSET. THE BUILDING IS TO BE CONSIDERED AS NEW ASSET. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VI MAL CHAND GOLECHA 201 ITR 442 HAS HELD THAT LAND AND BUILDING ARE SEPARAT E ASSETS FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. HENCE, IN CASE THE AMOUNTS HAVE BEEN INVESTED FOR ACQUIRING NEW ASSET I.E. BUILDING THEN DEDUCTION WILL BE ALLOWABLE AS PER SECTION 11 (1A) OF THE ACT. WE ARE NOT HAVING THE BENEFIT 14 OF GOING THROUGH THE BALANCE SHEET. THE AO WILL VER IFY THE FACTUAL POSITION AND WILL ALLOW THE EXEMPTION U/S 11(1A) OF THE ACT AS PER LAW. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14-10 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 14 /10/2011 *MISHRA COPY FORWARDED TO :- 1. THE DCIT, JHUNJHUNU CIRCLE- JHUNJHUNU 2. M/S. ANANDILAL PODDAR TRUST, NAWALGARH, JHUNJHUNU 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.200/JP /11) A.R, ITAT, JAIPUR 15