ACIT, V. M/s bhartiya Yug Vashista Sang,

ITA 211/RAN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0030 (ITAT-RANCHI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 23-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Charitable institution; Retrospective amendment; Cost of acquisition; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 50C; 12AA; 250; 11(1A); 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA NO. 211 / RAN / 2014 ASSESSMENT YEAR :2010-11 ACIT,CIRCLE-1, JAMSHEDPUR, 47, C.H. AREA, JAMSHEDPUR- 831 001 V/S . M/S BHARTIYA YUG VASHISTA SANGA, GITA BHAVAN COMPLEX, AIR BASE COLONY, KADMA, JAMSHEDPUR [ PAN NO.AAAAB 7499 M ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI CHOUDHURY ORAN, DR /BY RESPONDENT SHRI P.K. AGARWAL, FCA /DATE OF HEARING 06-09-2016 /DATE OF PRONOUNCEMENT 09-09-2016 / O R D E R PER N.V.VASUDEVAN, JUDICIAL MEMBER:- THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 06.03.2014 OF COMMISSIONER OF INCOME TAX (APPEALS)-XXI, NEW DELHI RELATING TO ASSESSMENT YEAR (AY) 2010-11. 2. THE ASSESSEE IS A SOCIETY WHICH IS DULY REGISTER ED U/S 12AA OF THE INCOME TAX ACT, 1961 (THE ACT FOR SHORT). DURING THE PREVIOUS YEAR THE ASSESSEE SOLD ITS PROPERTY AND THE LONG TERM CAPITA L GAINS ON SALE OF THE AFORESAID PROPERTY WAS COMPUTED BY ASSESSEE AT 83, 42,447/-. THE ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 2 COMPUTATION OF TOTAL INCOME MADE BY THE ASSESSEE FO R ASSESSMENT YEAR 2010- 11 WAS AS FOLLOWS:- COMPUTATION OF TOTAL INCOME & TAX LIABILITY AY 2010-11 INCOME FROM CAPITAL GAIN LONG TERM CAPITAL GAIN SALES PROCEEDS 13,998,236.00 LESS: INDEX COST OF ACQUISITION A (INDEX : 447) 60,981 B (INDEX: 426) 124,026 (185,007.00) LESS: COST OF IMPROVEMENT (5,470,782 .29) 8,342,446.71 INCOME FROM OTHER SOURCES DONATION 7,100.00 BANK INTEREST 4,765.00 11,865.00 8,354.311.71 ========== UTILISASTION OF FUNDS DONATION 7,650,000.00 _____________ OTHERS 5,274.00 7,655,274.00 =========== SURPLUS 6,655,274.00 TAX LIABILITY (AS SURPLUS IS LESS THAN 15% OF TOTAL INC OME) NIL 3. IT CAN BE SEEN FROM THE AFORESAID COMPUTATION O F TOTAL INCOME BY THE ASSESSEE AND ASSESSEE HAD CLAIMED APPLICATION OF IN COME FOR CHARITABLE PURPOSE MORE THAN 85% OF ITS TOTAL AND THUS CLAIMED THAT ITS TOTAL INCOME IS NIL. 4. THE ASSESSING OFFICER WAS, HOWEVER, OF THE VIEW THAT THE PROPERTY WAS SOLD BY ASSESSEE FOR CONSIDERATION OF 1,39,98,236/ -. THE ONLY WAY BY WHICH ASSESSEE CAN CLAIM THAT THE CAPITAL GAINS SHOULD NO T BE BROUGHT TO TAX, IS BY MAKING INVESTMENT OF THE SALE PROCEEDS IN ACQUIRING ANOTHER CAPITAL ASSET AS LAID DOWN IN SEC.11(1A) OF THE ACT. AS CAN ALSO BE SEEN FROM THE COMPUTATION OF TOTAL INCOME AS ABOVE, THE ASSESSEE HAD DONATED A SUM OF 76.50 LAKH TO ANOTHER CHARITABLE TRUST BY NAME BRAHMANAND SEWA SA DAN WHICH WAS RUNNING HEART HOSPITAL AND CLAIMED THAT GIVING SUCH DONATION WAS NOTHING BUT APPLICATION OF INCOME BY THE ASSESSEE FOR CHARITABL E PURPOSE AND THEREFORE IN VIEW OF THE PROVISIONS OF SEC. 11(1) OF THE ACT, NO INCOME COULD BE ASSESSED TO TAX IN THE HANDS OF THE ASSESSEE. THE ASSESSEE P LACED RELIANCE ON THE ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 3 DECISION OF ITAT BANGALORE BENCH IN THE CASE OF AL AMEEN EDUCATION SOCIETY VS. DIT(E) BANGALORE (2012) 26 TAXMANN.COM 250 (BANGALORE), WHEREIN IT WAS HELD THAT CAPITAL GAINS OR SALE OF ASSETS CHARITABL E TRUST IF THEY ARE APPLIED FOR CHARITABLE PURPOSE CANNOT BE BROUGHT TO TAX. 5. THE AO, HOWEVER, REJECTED THE CLAIM OF ASSESSEE AND HELD AS FOLLOWS:- CONCLUSION :- A COMBINED READING OF THE PROVISIONS OF SECTION 11( 1A) AS WELL AS BOARDS CIRCULAR NO. 72 OF 1972 AND UNDERSTANDING O F THE CITED CASE LAWS MAKES IT ABUNDANTLY CLEAR THAT THE ASSESSEE HA S TO UTILIZE THE NET CONSIDERATION ON THE SALE OF A CAPITAL ASSET FOR AC QUIRING ANOTHER FRESH CAPITAL ASSET. THE ASSESSEE IS NOT ENTITLED TO USE SUCH AMOUNTS FOR PAYING OUT THE SAME AS CONTRIBUTION TO ANOTHER TRUS T/ORGANIZATION. FURTHER, IT IS ALSO TO BE NOTED THAT THE ASSESSEE I S NOT ENGAGED IN ANY MEANINGFUL CHARITABLE ACTIVITY SINCE THE SUBSTANTIA L PART OF INCOME OF THE ASSESSEE CONSISTS OF CAPITAL GAINS ONLY AND SOLE EX PENSES OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, OTHER T HAN THE DONATION OF RS.76,50,000/- GIVEN BY IT TO ANOTHER INSTITUTION, WAS ONLY MISC. EXPENSES OF RS.4500/- AND BANK CHARGES OF RS.774/-. SINCE, THE CAPITAL GAIN OF RS.83,42,447/- IS NOT UT ILIZED FOR ACQUIRING ANOTHER CAPITAL ASSETS AS REQUIRED BY THE PROVISION S OF SECTION 11(1A) OF THE ACT, THE SAME IS LIABLE TO BE TAXED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION SUBJECT TO THE DISCUSS ION IN ENSUING PARAS. 6. THE ASSESSING OFFICER ULTIMATELY COMPLETED TOTA L INCOME OF ASSESSEE AS FOLLOWS:- WITH THESE REMARKS, THE TAXABLE INCOME OF THE ASSE SSEE SOCIETY IS COMPUTED AS UNDER:- INCOME FROM BUSINESS : SALE OF LAND 1,39,98,236/- COST OF LAND SOLD (INDEXATION NOT ALLOWED) 1,26,730/- NET SURPLUS 1,38,71,506/- INCOME FROM OTHER SOURCES OTHER INCOME 11,865/- LESS: EXPENSES 5,274/- 6,591/- ADDITION U/S. 50C 12,500/- 1,38,90,597/- ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 4 ASSESSABLE INCOME 1,38,90,600/- ROUNDED OFF TO 1,38,90,600/- 7. ON APPEAL BY THE ASSESSEE LD. CIT(A) HELD THAT A SSESSEE WAS ENTITLED TO EXEMPT U/S 11(1) OF THE ACT AS IT APPLIED THE CA PITAL GAINS FOR CHARITABLE PURPOSE. THE FOLLOWING RELEVANT OBSERVATION OF LD. CIT(A) REPRODUCED BELOW:- 3.5 I HAVE CONSIDERED THE ORDER OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE AND I FIND CONSIDERABLE MERIT IN THE SUBMI SSIONS OF THE ASSESSEE. THERE IS NO DISPUTE THAT THE ASSESSEE IS A CHARITABLE SOCIETY AND HAS SOLD A LANDED PROPERTY AND THE INCOME/CAPIT AL GAIN HAS ARISEN TO THE ASSESSEE WHICH IS REQUIRED TO BE APPLIED FOR CHARITABLE PURPOSES AS PROVIDED U/S 11(1)(A). THE PROVISIONS OF SECTION 11(1)(A) IS A BASIC PROVISION FOR THE APPLICATION OF THE MONEY FOR THE CHARITABLE PURPOSES AND THE PROVISIONS OF SECTION 11(1A) IS AN OPTIONAL PROVISION FOR THE ASSESSEE IN CASE THE ASSESSEE CHOOSES TO BUY ANOTHE R CAPITAL ASSET OUT OF THE CAPITAL GAIN AND THE BASIC IDEA FOR BOTH THE PROVISIONS IS TO ALLOW EXEMPTION TO A CHARITABLE SOCIETY SO LONGS TH E INCOME IS APPLIED CHARITABLE PURPOSES. THE EXPENDITURE OF LAND DEVELO PMENT IS ALSO ALLOWABLE AS A DEDUCTION AS THE SAME HAS BEEN INCUR RED FOR DEVELOPING THE LAND AND SELLING THE SAME. THERE IS ALSO MERIT IN THE SUBMISSIONS OF THE ASSESSEE THAT THE APPLICATION OF THE INCOME/CAP ITAL GAIN IS NOT NECESSARILY TO BE APPLIED FOR ACQUIRING ANOTHER CAP ITAL ASSET ONLY AND THE PROVISIONS OF SECTION 11(A) IS NOT ONLY THE MOD E OF INVESTMENT AND THE CASE LAW RELIED ON BY THE ASSESSEE OF THE HONB LE ITAT BANGALORE IS APPLICABLE IN FAVOUR OF THE ASSESSEE AND HEADNOTE O F THE CASE READS AS UNDER:- WHETHER IF CAPITAL GAINS APPLIED FOR CHARITABLE PU RPOSE OF ASSESSEE NOT BY ACQUIRING A NEW ASSET BUT FOR OTHER CHARITABLE PURPOSE, THEN THERE IS NO REASON WHY IT SHOULD NOT BE CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE ENA BLING ASSESSEE TO CLAIM EXEMPTION UNDER SECTION 11(1) H ELD, YES [PARAS 16.1, 17.1 AND 21] [IN FAVOUR OF ASSESSEE] 3.6 AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANC ES OF THE CASE, I AM OF THE VIEW THAT THE ASSESSEE IS NOT INVOLVED IN ANY T RADE, COMMERCE & BUSINESS AND THE ASSESSEE HAS APPLIED THE MONEY FOR THE CHARITABLE PURPOSES AS PROVIDED U/S.11(1)(A) AND THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 AND ACCORDINGLY THE SAME IS ALLOWED WITH ALL THE CONSEQUENTIAL BENEFIT INCLUDING THE DEDUCTION OF RS .54,70,782/- 8. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REVENU E HAS PREFERRED THIS PRESENT APPEAL BEFORE THE TRIBUNAL. ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 5 9. WE HAVE HEARD RIVAL SUBMISSIONS. THE LD. DR REL IED ON THE ORDER OF AO AND LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF LD. CIT(A). 10. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. A CHARITABLE TRUST CAN SPEND AWAY THE PROCEEDS OF THE CAPITAL GAIN ON SALE OF THE CAPITAL ASSETS IN THE FOLLOWING MODES A IT CAN APPLY PROCEEDS TO CHARITABLE PURPOSES AS W AS ALLOWED PRIOR TO INSERTION OF SECTION 11 (1A) OF THE ACTAND AS IS AL LOWED EVEN AFTER INSERTION OF SECTION 11(1A) OF THE ACT. B. IT CAN ACCUMULATE PROCEEDS WITHIN THE LIMITS GEN ERALLY AND BEYOND THE LIMITS BY FOLLOWING LAID DOWN PROCEDURE THAT IS FILING FOR M NO. 10 UNDER SECTION 11(2) OF THE ACT. C. IT CAN MAKE DONATION TO OTHER CHARITABLE TRUSTS. D. IT CAN INVEST PROCEEDS OF SALE OF CAPITAL ASSETS IN ACQUIRING NEW CAPITAL ASSET AND THE CAPITAL GAIN SHALL BE DEEMED TO HAVE BEEN APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES BECAUSE OF INSERTION OF SECTI ON 11(1A) OF THE ACT WHICH HAS BEEN SPECIFICALLY INSERTED TO ALLOW THIS EXEMPT ION BY FINANCE NO. 2 ACT 1971 WITH RETROSPECTIVE EFFECT FROM 1.4.1962. 11. PRIOR TO THIS INSERTION OF SECTION 11(1A) OF T HE ACT ACQUISITION OF NEW CAPITAL ASSET ON SALE OF OLD ASSET WOULD NOT BE DEE MED APPLICATION TO CHARITABLE OR RELIGIOUS PURPOSE AND AS SUCH CHARITA BLE TRUST WERE LIABLE TO TAX IF THEY WERE UNABLE TO APPLY WHOLE OF SALE PROCEEDS TO CHARITABLE OR RELIGIOUS PURPOSE. HOWEVER BY THIS INSERTION OF SEC.11(1A) OF THE ACT, OPTION OF CHARITABLE TRUST TO APPLY SALE PROCEEDS FOR APPLICA TION TO CHARITABLE OR RELIGIOUS PURPOSE INCLUDING DONATION TO ANOTHER CHARITABLE TR UST HAS NOT BEEN TAKEN AWAY BUT RATHER ONE MORE AVENUE HAS BEEN OPENED THA T IS INVESTMENT IN NEW CAPITAL ASSET TO BE TREATED AS DEEMED APPLICATION T O CHARITABLE OR RELIGIOUS PURPOSE. THE CBDT IN CIRCULAR NO.72 DATED 6 TH JANUARY, 1972 HAS EXPLAINED THE LEGISLATIVE INTENT BEHIND INSERTION OF SEC.11(1 A) OF THE ACT AS A MEASURING FOR GRATING TAX RELIEF AND REMOVING CERTAIN ANOMALI ES AND PRACTICAL DIFFICULTIES. ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 6 THUS SECTION 11(1A) OF THE ACT DOES NOT PLACE ANY R ESTRICTION BUT IT IS ENLARGING THE AREA OF UTILIZATION. THE ASSESSEE TRU ST HAS ACQUIRED LAND BEING CAPITAL ASSET FOR CHARITABLE PURPOSE BUT DUE TO ABN ORMAL INCREASE IN VALUE DUE TO ESTABLISHMENT OF HEART AND EYE HOSPITAL BY GROUP TRUST, IT SOLD THE CAPITAL ASSETS AND APPLIED THE PROCEEDS BY WAY OF DONATION TO GROUP TRUST WHICH IS RUNNING EAR AND EYE HOSPITAL. THE TRUST IS NOT ALLO WED TO DO ANY BUSINESS BY ITS RULES AND REGULATIONS AND THE TRUST HAS NOT CAR RIED OUT ANY BUSINESS AND AS SUCH SURPLUS ON SALE OF LAND IS NOT BUSINESS INCOME BUT IS CAPITAL GAIN. 12. AS REGARDS LAND DEVELOPMENT EXPENSES THE AO HA S PROCEEDED ON A COMPLETE WRONG FOOTING. IT IS NOT TRUE THAT MOST OF THE LAND DEVELOPMENT EXPENSES HAVE BEEN INCURRED AFTER THE SALE OF LAND. RATHER EXPENSES WERE INCURRED PRIOR TO SALE AND PAYMENT WAS MADE AFTER R EALIZATION FROM SALE OF LAND. THE AOS NOTE THAT THERE IS NO JUSTIFICATION OF FENCING OF LAND ALREADY SOLD BY THE ASSESSEE TRUST AFTER SALE OF A LAND IS NOT T RUE RATHER BY FENCING LAND WAS MADE FIT FOR SALE. AS SUCH THERE IS NO REASON TO DI SALLOW LAND DEVELOPMENT EXPENSES OF RS.54,70,782/-. INDEXATION FOR LAND SO LD SHOULD BE ALLOWED AS CONTENDED EARLIER THIS IS CAPITAL GAIN AND NOT BUSI NESS INCOME. 13. DONATION PAID TO BRAHMANAND SEWA SADAN OF RS.7 6.50 LAKH SHOULD BE ALLOWED AS APPLICATION OF INCOME OF TRUST FOR CHARI TABLE PURPOSE AS:- A) CAPITAL GAINS ARE PART OF INCOME AND CAN BE APPL IED FOR CHARITABLE PURPOSE INCLUDING DONATION TO ANOTHER CHARITABLE TR UST. B) DONE BRAHMANAND SEWA SADAN IS RUNNING HEART HOSP ITAL IN ASSOCIATION WITH DR. DEVI SHETTY THE RENOWNED HEART SURGEON AND EYE HOSPITAL WITH RENOWNED EYE SURGEON, DR. PARTH B ISWAS. C) AUDITED ACCOUNTS OF BRAHMANAND SEWA SADAN ARE BE ING FILED ALONG WITH NIL INCOME TAX ASSESSMENT ORDER. ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 7 14. IN THE LIGHT OF THE ABOVE FACTUAL AND LEGAL P OSITION AS EXPLAINED IN THE DECISION OF THE ITAT BANGALORE IN THE CASE OF AL AM EEN EDUCATION SOCIEITY (SUPRA), WE ARE OF THE VIEW THAT THE CIT(A) WAS JUS TIFIED IN ALLOWING RELIEF TO THE ASSESSEE. WE DO NOT FIND ANY GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY, APPEAL BY THE REVENUE IS DIS MISSED. 15. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT 09/ 09/2016 SD/- SD/- ( ) ('# ) (M.BALAGANESH) (N.V.VASUDEVAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) RANCHI, *DKP $- 09 / 09 /201 6 RANCHI / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIRCLE-1, 47, CH AREA, JAMSHEDPUR- 831 001 2. /RESPONDENT-M/S BHARTIYA YUG VASHISTA SANGA, GITA B HAVAN COMPLEX, AIR BASE COLONY, KADMA, JAKSHEDPUR 3. / 2 / CONCERNED CIT RANCHI 4. 2- / CIT (A) RANCHI 5. 5 ##/, /, / DR, ITAT, RANCHI 6. ; / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR.PS, I TAT, RANCHI ITA NO.211/RAN/2014 A.Y.2010-11 ACIT, CIR-1,JSA VS, M/S BHARTIYA YUG VASHIST A SANGA PAGE 8 DATE OF DICTATION-06/09 ........ 1. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER OTHER MEMBER 07/09......... 2. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. -07/09 09/09.. 3. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR 09/09 PRONOUNCEMENT 09/09.. 4. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 5. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 6. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 7. DATE OF DISPATCH OF THE ORDER