IN THE ITAT BANGALORE BENCH ‘C’
Al Ameen Educational Society
Versus
Director of Income-tax (Exemption), Bangalore
IT APPEAL NO. 575 (BANG.) OF 2011
[ASSESSMENT YEAR 2006-07]
SEPTEMBER 28, 2012
ORDER
N.V. Vasudevan, Judicial Member – This is an appeal by the assessee against the order dated 21-03-2011 of DIT(E), Bangalore passed u/s 263 o the IT Act, 1961.
2. The assessee is a charitable trust carrying on the charitable activity of providing education. For assessment year 2006-07, the assessee filed return of income declaring a net deficit of Rs. 3,61,77,979/-. During the previous year, the assessee sold land belonging to it. In the return the assessee had given the computation of capital gains on sale of land as follows:
CAPITAL GAINS
| Sale proceeds | Rs. 4,00,00,000 |
| Less: Indexed cost of acquisition | Rs. 2,51,22,642 |
| Long term capital gain | Rs. 1,48,77,358.33 |
Less: Exemption u/s.11(1A) for investing the proceeds in Capital Asset to be held as corpus of Trust
| F.Y | Amount received | Investment in Capital Asset |
| 2001-02 | Rs. 90,00,000 | Rs. 1,05,50,322 |
| 2002-03 | Rs. 1,20,00,000 | Rs. 90,55,186 |
| 2003-04 | Rs. 1,22,73,125 | Rs. 15,05,697 |
| 2005-06 | Rs. 67,26,875 | Rs. 67,26,875 |
| Total | Rs. 4,00,00,000 | Rs. 2,78,38,080 |
Amount deemed to have been utilized for Charitable purpose
| (Cost of New Asset – Cost of Original Asset) | |
| (27838080 – 13301891) = | Rs. 1,45,36,189 |
| Taxable Long Term Capital Gains | Rs. 3,41,169.33 |
The assessee declared taxable long term capital gains on sale of one of its property for Rs. 3,41,169/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (the Act).
3. Later on the AO issued a notice u/s 148 of the Act on 30-11-2007 for the reason that the net consideration received on sale of the property had not been invested in capital assets by the assessee and therefore, computation of capital gain by the assessee had to be determined afresh.
In the re-assessment proceedings, the AO worked out the LTCG as follows:
“The assessee has sold land for Rs. 4,00,00,000/-and has invested Rs. 2,78,38,080/- in acquiring new capital asset and thus, declared a sum of Rs. 3,41,169/- being taxable long term capital gain. The assessee has claimed exemption u/s11(1A) of the Income-tax Act for investing the proceeds in the capital asset to be held as corpus of the trust. For claiming exemption u/s 11(1A) of the Act, the whole of net consideration has to be invested in capital assets whereas the assessee has invested part of the sale proceeds i.e. Rs. 2,78,38,080/- and thus not entitled for exemption u/s 11(1A) of the Income-tax Act, 1961 for the entire capital gains. So, the capital gains of Rs. 1,03,53,927/- (Rs. 1,48,77,358 x Rs. 2,78,38,080/Rs. 4,00,00,000) only is exempt and the balance of Rs. 45,23,430/- is taxable as worked out under.”
4. The DIT(E) in exercise of powers u/s 263 of the IT Act, 1961 was of the view that the aforesaid computation of capital gains done by the AO in the assessment proceedings in the order passed u/s 147 of the Act dated 30- 12-2008 was erroneous and prejudicial to the interest of revenue. Accordingly, the DIT(E) issued a show cause notice dated 21-02-2011 proposing to recompute the capital gains. According to the DIT(E) when a charitable trust derives capital gain on sale of its capital asset then the provisions of sec.11(1A) will be applicable. From the perusal of the capital gains which we have set out above, it can be seen that the transfer is claimed by the assessee to have taken place during the previous year relevant to assessment year 2006-07. The assessee has been receiving advance for the sale of the property right from the previous year relevant to assessment year 2002-03. Even prior to the Assessment year 2006-07, the Assessee had invested sale consideration received on transfer of the capital asset in new assets. According to the DIT(E), the investment in purchase of capital asset claimed by the assessee for the assessment years 2002-03 to 2004-05 ought not to have been considered as investment in new asset by the AO, as these investments had been made in the previous year prior to previous year in which the transfer of the capital asset took place. The action of the AO in accepting the claim of the assessee in this regard was erroneous and has resulted in prejudice to the interest of the revenue. This was the basis on which the DIT(E) issued a show cause notice to the assessee.
5. In reply to the aforesaid show cause notice, the assessee submitted that it had entered into an agreement for the sale of the property as early as 12-07-2001 and a transfer had taken place during the previous year relevant to assessment year 2002-03 and therefore, the capital gain cannot be brought to tax in assessment year 2002-03, though wrongly declared by he assessee in the return of income for the assessment year 2006-07. The assessee further submitted that the computation of LTCG has to be done in accordance with the provisions of sec.45 to 55A of the Act and the assessee should be entitled to the benefit of indexation of the cost of acquisition of the capital asset. The assessee also submitted that the order of the AO accepting the claim of the assessee cannot be said to be erroneous and prejudicial to the interest of revenue.
6. The DIT(E) however, did not accept the plea of the assessee and he held as follows:
“In the return of income filed for the assessment year 2006-07, the assessee has determined the ‘capital gains’ at Rs. 3,41,169/-. The computation of capital gain as per the assessment order in question is as under:
