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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Sh. Kul BharatDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
This appeal is filed by the assessee against the order of the ld. CIT (A)-40, Delhi dated 05.06.2017.
Following grounds have been raised by the assessee:
“1. The ld. CIT (A) has erred in law, facts and circumstances of the case by wrongly confirming the income assessed u/s 143(1) of the Income Tax Act, 1961 amounting to Rs.60,63,797/- instead of NIL.
The ld. CIT (A) has erred in law, facts and circumstances of the case by wrongly confirming the disallowance of the Indexed Cost of Property purchased amounting to Rs.69,09,302/-.
ITA No. 5372/Del/2017 2 Society of the Sisters of the Destitute 3. The ld. CIT (A) has passed the order based on conjecture and surmise in a stereotype manner without judicially analyzing actual facts.
The ld. CIT (A) has ignored the principles of natural justice while passing the appellate order dismissing the appeal.”
The facts of the case are that return on income was filed on 09.12.2014. In the return of income, capital gains was computed by reducing cost of acquisition after indexation from the full value of consideration. No cost of improvement after indexation or expenditure on transfer was claimed. Further, the entire amount of capital gain worked out at Rs. 1,87,49,198/- was claimed as exempt under section 11(1A).
While processing the return under section 143(1)(a), the CPC have taken the cost of acquisition after indexation as income from capital gains and the same has been added to the income of the assessee as per column 6 of the intimation under section 143(1)(a). Accordingly, income was computed at Rs. 60,63,797/- on which a demand of Rs. 18, 67,466/- was raised.
Aggrieved by the order under section 143(1)(a), the appeal has been filed before the ld. CIT (A) who affirmed the order of the CPC.
Submissions of the assessee are as under:
"During FY 2013-14 the Society sold a property for Rs.2,56,58,500/- which was purchased in 2005-06 for Rs. 36,57,000/-. Following new Assets have been purchased during the same Financial Year:
ITA No. 5372/Del/2017 3 Society of the Sisters of the Destitute
Building Afzalgarh Rs.2,01,92,591/-(1,69,17,591 + 32,75,000) Building Dehradun Rs.76,99,200/- Flat Thuglakabad Rs.21,61,200/- Building Kherakhurd Rs. 18,18,237/- (10,00,000+8,18,237) Total Rs.3,18,71,228/-
The CPC in their computation u/s 143 (1a) has disallowed the Indexed Cost of Property purchased amounting to Rs.69,09,302/-.
Extracts of Section 11(1A) is given below:
“(1A) For the purposes of sub-section (1),-
(a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilized for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely: -
(i) where the whole of the net consideration is utilized in acquiring the new capital asset, the whole of such capital gain;
(ii) where only a part of the net consideration is utilized 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;”
ITA No. 5372/Del/2017 4 Society of the Sisters of the Destitute Explanation. - In this sub-section, -
“(ii) cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55;”
In Al-Ameen Educational Society vs. The Director of Income-tax (E) Bangalore on 14th September 2012, the ITAT, Bangalore 'C' Bench, Bangalore held that the expression “capital gain” or the mode of computation of capital gain has not been defined for the purpose of Sec.11 (1A) of the Act and therefore the normal expression capital gain and the computation of such capital gain as laid down in the provisions of Sec.45 to 55A of the Act will apply. For determining the quantum of capital gain which will be deemed to be application of income for charitable purpose and become eligible to get exemption u/s. 11(1) of the Act, the provisions of Sec. 11(1A) of the Act have to be applied.
In the case of Trustees of Shri Ramanagar Trust Vs. ITO 13 ITD 426 (Mum) it has been held that advances received by a Trust in the period earlier to the previous year in which transfer of a capital asset by a trust takes place, if invested in purchase of capital asset in the period earlier to the previous year in which transfer of the capital asset takes place such purchase should also be considered as application of capital gain for charitable purpose.
ITA No. 5372/Del/2017 5 Society of the Sisters of the Destitute 11. The expression "Cost of the transferred asset" is defined in Expln. (ii) to Sec. 11(1A) of the Act, and it lays dawn that "Cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of Sec.48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within meaning assigned to that expression in sub-clause (b) of Clause (1) of Section 55. Thus the difference between the capital gain utilized in acquisition of new assets viz., Rs.2,78,38,080/- and the indexed cost of acquisition viz., Rs.2,51,22,641/- viz., Rs.27,15,449/- is to be considered as application of capital gain for charitable purpose which would be entitled to exemption income u/s. 11(1) of the Act.
Section 11(1A) gives the treatment of capital gains arising in the case of charitable institutions. It provides that the capital gains would be deemed to have been utilized for the purposes of section 11(1)(a) if the net consideration received was reinvested in another capital asset. Further, if only part of the net consideration is invested in another capital asset, then the appropriate fraction of the capital gain will be deemed to have been applied for charitable and religious purposes.
From the details submitted by the assessee it can be held that the entire net consideration, which as per the definition in clause (iii) of the Explanation below section 11(1A) is full value of consideration as reduced by any expenditure incurred wholly and exclusively in connection with such transfer, has been invested by the assessee in the new capital asset. The net consideration in the case of the assessee comes to
ITA No. 5372/Del/2017 6 Society of the Sisters of the Destitute Rs.2,56,58,500/- which is also the full value of consideration. The assessee as per the details submitted during appellate proceedings, has invested Rs.3,18,71,228/- in new capital asset which is more than the net consideration. Hence, on the basis of that submissions made in the appellate proceedings, the assessee satisfies the conditions as laid down in section 11(1A)(a)(i) and hence no adjustment by the CPC is called for.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 25/08/2021.
Sd/- Sd/- (Kul Bharat) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 25/08/2021 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR