Judgment:
The appellant has filed appeal against the order passed by the Commissioner (Appeals) and taken following grounds of appeal: "(1.) That the worthy Commissioner (Appeals), Amritsar has erred in upholding estimate the value of the property at five times against six times.
(2.) That the worthy Commissioner (Appeals) has been unreasonable and illegal in upholding the levy of interest under sections 234A and 234B of the Income Tax Act and assessee trust is not liable to pay advance tax under section 207 read with 208 on his current income.
(3.) That under these grounds of appeal, it is, prayed that the relief to the extent of claim as per grounds may be allowed." 2. The appellant also filed additional grounds of appeal vide application dated 12th June, 1996 which are as follows : "(1.) That the worthy Commissioner (Appeals) has erred in upholding the allowance allowed at 50% of the normal value of the property for the religious place which was very ancient and had a sanctity of Shrine of Udasin sect.
(2.) That the learned assessing officer has illegally denied the deduction under section 11(1A)(a) (h) of the Act regarding party of net consideration which was utilised in acquiring the new capital assets." 3. The appellant revised grounds of appeal vide application dated 16th June, 1998:- "(1.) That the learned Commissioner (Appeals) and the assessing officer have violated the statutory provisions in computing the taxable income under the head 'Capital gains' in the following respects: - (a) that he has not regarded Rs. 20,70,603 as application of income for charitable purposes as provided for in section 11(l)(a) of the Act.
(b) That he has erred in not applying correct legal principles while determining the fair market value of the property as on Ist April, 1974 acquired subsequently by the Government.
(c) That he hds not allowed deductions in computation of 'capital gains' as provided under section 48(2) of the Act.
(d) That he has misinterpreted and misapplied the..provisions of section 11(1A) of the Act.
(2.) That he has also wrongly calculated the amount of exemption available for accumulation of income under section 11(l)(a) of the Act.
(3.) That the learned assessing officer has illegally levied interest under sections 234A and 234B of the Act." The appellant was allowed to file revised grounds of appeal. So far as the additional ground is concerned, the matter was discussed and the additional ground taken by the appellant is a legal claim. The learned departmental Representative has no objection and therefore, additional ground taken by the appellant is admitted.
The appellant is a religious trust registered with the CIT under section 12A vide Certificate No. CR/CIT/7056, dated 31st Aug., 1976.
The religious trust belongs to sect Hindus called Udasin. The trust was having a property in the vicinity of Golden Temple and the property consists of land and super-structure which included a temple, rooms for saints as well as commercial complex consisting of shops and Sarai.
Apart from the commercial property, this trust owns property like agricultural land. The trust was, therefore, having regular agricultural land, rental income and income from donations. During the year under consideration, the Government of Punjab acquired the property in and around the Golden Temple which included entire property of the trust. The controversy to be resolved is regarding the capital gains earned by the trust and taxability of such capital gains. The assessing officer has observed that the case has to be analysed from different angles and listed those angles as follows : "(i) Whether the compensation received during the two previous years of property acquired by the Government, Punjab under Galiara Scheme have to be taken in one year or two different years? (ii) Whether compensation received is to be taxed as capital gain governed under section 80T of the Income Tax Act or the income received is to be taxed in the commercial sense under section 11(1A)(a)(ii) of the Income Tax Act? (iii) Whether the valuation (cost as on 1st April, 1974) of the property for purpose of income is to be taken at Rs. 40 lacs as estimated by the assessee or less as per evidence given in support thereof? (iv) Whether the claim of benefit of exemption of income accumulated by 25 per cent under section 11 (1) (a) of the Income Tax Act is legally allowable? (v) Whether the setting up of capital gain with the other expenses is allowable? The assessing officer has computed cost of acquisition on 1st April, 1974. The assessee estimated the cost as on 1st April, 1974 at Rs. 40 lacs. The assessing officer has observed that the area under shops consists of 342 sq. yds. and balance area of 1,578 sq. yds. is occupied by other structure. The assessing officer has observed that the property is not in existence and therefore, the same cannot be referred to the departmental Valuation Officer and the only alternative according to the assessing officer is to adopt rent capitalisation method. The assessing officer has tabulated the rent received for various assessment years and worked average rent at Rs. 35,926. The assessing officer has worked rent for 340 sq. yds. and adopted the same yardstick for remaining 1,578 sq. yds. By this calculation, he has worked out the rent of the entire property at Rs. 201,689 by rent capitalisation method. He has valued the property at Rs. 21,42,950. The assessing officer has made generalistic discussion and finally mentioned that he is estimating property at Rs. 32,00,000 as on 1st April, 1974. Regarding applicability of section 11 (1A), the assessing officer has given following observations : "It is seen that in both the earlier assessment orders a number of deductions have been allowed which were not allowable and similarly a number of deductions were not allowed which were allowable to the assessee under the law. For example, a deduction for the purchase of land and building etc. was allowed which is not allowable. According to this section, exemption from the capital gain is to be worked out under this section. The provisions of section 11(1A)(a) and (ii) are applicable as the part of consideration has been utilised. The net consideration received by the assessee in this case is Rs. 50,66,300.
The assessee utilised a sum of Rs. 20,70,603 only towards the acquisition of new assets. It is provided in the Act that where only a part of net consideration is utilised 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 utilised exceeds the cost of transferred asset.
In this case, the cost of transferred asset has been taken at Rs. 32 lacs as mentioned supra against which the value of new capital asset acquired is Rs. 20,70,603 only. It is not understood as to how any deduction can be given to the assessee when the value of new capital asset acquted is much less than the cost of transferred asset. The claim of the assessee in this respect is, therefore, not admissible and the same is rejected." The assessing officer has also denied the deduction under section 80T because according to him no other deduction is admissible from capital gains of the trust except provided for in section 11(1A)(a). He has observed that the cost of acquisition of the new asset is less than the capital gain, therefore, no other deduction is permissible. Regarding utilisation of capital gain for the purpose of the trust, the assessing officer has observed that the contention of the assessee is not admissible. He has observed that section 14 is not applicable and as such there is no restriction for the adjustment of expenditure against the capital gain and it is the duty of the trust to spend such amount for the objects of the trust.
Aggrieved against the order passed by the assessing officer the appellant filed appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) has given his finding in para 6 of the order which is reproduced as follows : "6. After hearing the learned counsel and considering the facts of the case, it is noted by me that the first grievance of the appellant relates to the deduction as allowed at 50 per cent by the learned assessing officer for the portion for which rent capitalisation method could not be applied. The appellant's contention is that this deduction is on the lower side. I am unable to accept this contention as I find that the deduction after considering all the relevant facts including the ancient value and the sanctity of the shrine. I am also is agreement with the assessing officer in taking the cost of acquisition as on 1st April, 1974 at Rs. 32 lacs. So far as the computation in respect of exemption is concerned, the stand taken by the learned counsel appears to be justified. The assessing officer has allowed the exemption upto 25 per cent following thereby the decision that there are two limbs of section 11(l) as per which the exemption is to be allowed in respect of unspent accumulated income of the previous year.
The learned assessing officer has applied the provisions of section 11(l)(a) and which deals with the question of investment of the balance accumulated income which has still not earned exemption under sub-section (1)(a) of the Act. The relevant portion from the headnote of this decision relating to this further exemption is reproduced hereunder : "Then follows sub-section (2) which deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-section (1)(a). So far as that balance of accumulated income is concerned that also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by subs. (1)(a) of section 11 would get lifted if the additional accumulated income beyond 25 per cent or Rs. 10,000 whichever is higher, as the case may be, is invested as laid down by section 11(l) after following the procedure laid down therein. Therefore, sub-section (2) will operate qua the balance or 75 per cent of the total income of the previous year or income beyond Rs. 10,000 whichever is higher, which has not got the benefit of tax exemption under sub-section (1)(a) of section 11. It has to be kept in view that out of the accumulated income of the previous year an amount of Rs. 10,000 or 25 per cent of the total income property, whichever is higher, is given exemption from income-tax by section 11(l)(a) itself, That exemption is unfettered and not subject to any conditions. Sec. 11(2) does not operate to whittle down or to cut across the exemption provisions contained in section 11(l)(a) so far as such accumulated income of the previous year is concerned. It has also to be appreciated that sub-section (2) of section 11 does not contain any non Obstante clause like "notwithstanding the provisions of sub-section (1)" consequently it must be held that after section 11(l)(a) has had full pay and if still any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income-tax exemption, sub-section (2) of section 11 can be pressed into service and if it is complied with, then such additional accumulated income beyond 25 per cent or Rs. 10,000 whichever is higher, can also earn exemption from income-tax on compliance with the conditions laid down by sub-section (2) of section 11.
7. In view of the observations made by the highest court of the country in the decision to above, supra, the assessing officer may examine the relevant details to determine if any further exemption can be allowed to the appellant on that basis. The assessing officer, if he so desires, may call for any other details and give an opportunity to the appellant for determination of the exemption in accordance with the decision of the highest court of the country, while giving effect to this order. Regarding charging of interest, I am unable to accept the appellant's contention that the provisions of sections 234A and 234B were not applicable in the case of the trust. The interest charging provisions are mandatory and wherever the same are attracted, the interest will have to be levied accordingly. I, therefore, hold that the appellant cannot succeed on this ground. In this result, the appeal is dismissed subject to the relief, if any, as per the directions given above." Against the order passed by the learned Commissioner (Appeals), the appellant is in appeal before us.
The learned counsel of the appellant has pleaded that the assessing officer has not given benefit of Rs. 20,70,609 as an application of income for religious and charitable purpose as provided under section 11(1A)(a) of the Income Tax Act. The learned counsel pleaded that the appellant purchased and constructed property of Rs. 20,70,609 during the assessment year under consideration. The learned counsel pleaded that this new asset was purchased out of funds received on account of acquisition of property by the Government for Rs. 50,66,300 during the year under consideration that is between 1-4-1988 to 31st March, 1989.
The learned counsel pleaded that both the learned Commissioner (Appeals) and the assessing officer has ignored this fact even though the assessing officer has admitted that the taxability of capital gains is to be analysed under section 11(IA) of the Income Tax Act. The learned counsel pleaded that since the amount of Rs. 20,70,609 has been applied for the advancement of religious and charitable purposes under section 11(l)(a), benefit of this amount has not been allowed while computing income as per Chapter-HI of the Income-tax. The learned counsel of the appellant relied on the decision of S.RM.M. CTM nruppani Trust v. CIT (1998) 145 CTR (SC) 176 : (1998) 230 ITR 636 (SC). The learned counsel pleaded that the Hon'ble Supreme Court has held that the income received due to sale of assets can be invested in the capital assets and benefit of purchase of the capital assets should be given while computing income of the trust. The learned counsel pleaded that the authorities below have not taken note that the property acquired was a temple belonging to Udasin and situated near Sarai Guru Ram Dass and Manji Sahib complex. The learned counsel has pleaded that building is having a religious sanctity and is more than 200 years. It was also submitted that the monuments in the temple were invaluable antiques and irreplaceable articles which cannot be valued in terms of money but has tremendous value in terms of faith of the followers. The learned counsel pleaded that value at Rs. 40 lacs was reasonable, just and appropriate. The learned counsel pleaded that the value adopted by the assessing officer at Rs. 32 lacs is a guess work and purely based on estimation.
Alternatively, the learned counsel pleaded that he should have been allowed deduction under section 48(2) read with section 55 of the Income Tax Act. The learned counsel pleaded that the meaning of application of income is interpreted by the various Courts as disbursing income either as revenue expenditure or capital expenditure incurred in furtherance of the charitable purposes or religious purposes of the trust. The learned counsel pleaded that section 11(1A) does not apply in a situation where capital gains is utilised to acquire new asset in furtherance of charitable and religious purposes.
The learned counsel pleaded that it is applied only in cases where capital gains is utilised for acquisition of assets other than for charitable and religious purposes. The learned counsel pleaded that object of section 11(1A) is to confer an additional benefit of exemption from tax in case of acquisition of a new asset and has nothing to do with charitable or religious purposes of the trust.
The learned counsel has also pleaded that the calculation of total income is worked out as follows:- Less : Income applied by incurring revenue expenditure under section 11(l)(a) as accepted by assessing officer Less : Income applied by incurring capital expenditure thereby acquiring a new capital asset of advancement of the religious or charitable purposes under section 11(l)(a) The learned departmental Representative relied on the orders passed by the authorities below.
The first controversy/that requires to be involved relates to the cost of acquisition to be fixed as on 1st April, 1974. The appellant has worked out cost of acquisition as on 1-4-1974 at Rs. 40 lacs. There are three estimates made regarding the cost of acquisition and the first assessment of cost of acquisition shown by the appellant was accepted.
In the second assessment rent capitalisation method was adopted where the maintainable rent for the entire property was worked out at Rs. 5 lacs but value of the asset was taken at Rs. 15 lacs. The assessing officer applied his mind third time. The assessing officer relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Shri Radhe Mohan (1984) 43 CTR (P&H) 236 : (1985) 153 ITR 399 (P&H). The assessing officer gave finding that the total area is consisting of 1920 sq. yrds.and area under shops was 342 sq. yrds.. and area under other structure was 1,578 sq. yrds.. The other area consists of rooms for the saints, a Mandir, Samadhi of Akhara Mahant, hall for Guru Granth Sahib, open compound consisting of one Beri and one Neem, Langar hall, Puja room and room for saints. The assessing officer presumed that the appellant will get same rent for the remaining portion as he got for the shop complex and worked out an estimated maintainable rent for the entire property at Rs. 2,01,689, after allowing reduction of 15 per cent. The assessing officer valued the property at Rs. 21,42,950. He has, however, taken note of the fact that the shrine is having respectable place in the minds of its followers and therefore the value of the same cannot be measured in terms of money. However, he made a reasonable estimate of Rs. 32 lacs.
The assessing officer is admitting that the place was having considerable advantage regarding the historical background of the religious place. There is ample evidence that the place was quite adjacent to Golden Temple. There was a temple with various historic monuments. The rent of the shop is lower than what was prevailing market rent because according to tenants were very old because small rent was being paid by those tenants. Even in 1974, when the Amritsar was top most commercial centre of the Punjab, the property of the appellant was situated in and around the commercial hub of the city. If one has to presume the rental value of non-rental area that would definitely be much more than the rent received from the shops because the rent was received from the tenants, who were as old as 15 years of occupancy. At one time, predecessor of the present assessing officer valued the rental value of the property at Rs. 60,90,000 which was also based on purely estimate. The present maintainable rent is also based on estimate but of course with some base.
We are of the opinion that the rental value of 1,978 sq. yds. should be more than the rental value of the shop area. We, therefore, feel that reasonable maintainable rent for the property should be taken at Rs. 2,61,000 after allowing deduction at 15 per cent of rental value by rent capitalisation method which will come to Rs. 26,62,500 as against calculated by the assessing officer at Rs. 21,42,950. The assessing officer has estimated the value of other structures and articles at Rs. 10,57,050. This estimate is also based on purely estimate and guess work. We are of the opinion that value of these entire articles required to be estimated at Rs. 12 lakhs as compared to the value of Rs. 5 lacs. adopted by the assessing officer. We, therefore, estimate the cost as on 1st April, 1974 at Rs. 26,62,500 + Rs. 12 lakhs + Rs. 38,62,500.
The second controversy to be resolved is that whether on the facts and in the circumstances of the case and in the case of the trust, capital gains is to be assessed under section 11(1A)(a) of the Income Tax Act or capital gain is to be taxed in accordance with Chapter-IV of the Income Tax Act read with Chapter Y read with sections 45 to 69 of Income Tax Act.
Chapter IV of the Income Tax Act deals with the computation of total income of any assessee including the assessee enjoying status of AOP and having legal entity of trust. Chapter-D deals with the computation of business income which falls under "Profits and gains of the business income." and Chapter-E deals with the computation of business income viz-a-viz capital gains. The section 46 is a charging section which deals with the capital gains and covers any profit or gain arising from the transfer of the capital asset effected in the previous year, be chargeable to income-tax under the head 'Capital gains' that shall be deemed to be income of previous year in which such transfer took place.
All exceptions, exemptions, deductions and benefits are mentioned under various sections, sub-sections and clauses from sections 45 to 59 of the Income Tax Act. Nowhere in sub Chapter 'E', it is mentioned that the Capital gains in case of trust property is to be taxed and calculated in a different manner than what is provided in sub Chapter-E. We would like to reproduce section 11(1A) which is creating confusion in the mind of the assessing officer. The relevant section 11(1A) is reproduced as follows (a) Where a capital asset, being property held under the trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised 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 utilised in acquiring the new capital asset, the whole of such capital gain~ (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to be amount, if any, by which the amount so utilised exceeds the cost of the transferred asset-," The section (1A) is only for the purposes of sub-section (1) and sub-clause (i) gives details of the income which are not to be included as income in the previous year from properties held with charitable and religious purpose. The very purposes of section 11(lA) is mentioned in the section itself. The assessing officer and the learned Commissioner (Appeals) has misled themselves by giving a finding that section 11(1A) is meant for calculation of capital gains tax. In fact this section is to operate after capital gains are worked in accordance with Chapter-E of the Income Tax Act. This gives an additional benefit to the appellant, if, he has to make a claim that income arising out of capital gains is to be exempted under section 11(l) then he has to fulfil various conditions mentioned in section (1A).
The CBDT has also issued Circular No. 52 : F. No. 152(65)/70-TPL, dated 30-12-1970, on the subject-matter, the relevant extract of the circular is reproduced as follows : Under section 11(1) of the Income Tax Act, 1961, as amended by the Finance Act, 1970, income derived from property held under trust for charitable or religious purposes is exempt from income-tax only to the extent such income is actually applied to such purposes during the previous year itself or within three months next following. As 'Income' includes 'Capital gains', a charitable or religious trust will forfeit exemption from income-tax in respect of its income by way of capital gains unless such income is also applied to the purpose of the trust during the period referred to above. In this connection, a question has been raised whether the capital gains arising to a charitable or religious trust from the sale of capital assets belonging to it would be regarded as having been applied to charitable or religious purposes, if the trust invests the amount received from the sale of capital asset, including the capital gains realised, in acquiring another capital asset for the trust. This question was earlier examined by the Board in 1963, and instructions were issued, vide Circular No. 2P (LXX5) of 1963, dated 15th May, 1963 (printed below) to the effect that where a charitable or religious trust transfers a capital asset forming part of the corpus of its property solely with a view to acquiring the new capital asset, the amount of capital gains so utilised would be regarded as having been applied to the charitable of religious purposes of the trust within the meaning of section 11(l). The Board have decided that the above instructions should continue to be operative notwithstanding the changes made in the schemes of tax exemption of charitable or religious trustee through the Finance Act, 1970. " We are, therefore, of the opinion that income under capital gain is to be calculated in accordance with sections 45 to 59 of the Income Tax Act, 1961. From the facts analysed above, the appellant is entitled for exemption under section 11(1A). On the factual position, we have given finding that the cost as on 1st April, 1974 is Rs. 38,62,500. The purpose of invoking section 11(l)(a) is to exclude the income of charitable and religious institution from the total income of the trust. The income to be excluded relates to the income derived from the property held under the trust to the extent such income is applied for the purpose of the trust in India. The Hon'ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC), has given a broader and wider meaning for charitable purpose. The Hon'ble Supreme Court has given following observations which are reproduced as under: "Now, we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity for profit. We do not think the court would be justified in drawing any such inference merely because the activity results in profit. It is in our opinion not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be prescribed. Even if there is no such expression, the nature of the charitable purpose, the manner in which the activity for advancing charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regarding to all the facts and circumstances of the case, the dominant objects of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose but, if it is the latter, the charitable character of the purpose would not be lost.
If we apply this test in the present case, it is clear that the activity obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognised by the Central Government under section 25 of the Company Act, 1956, and under its memorandum of association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee. We are of the view that the Tribunal was right in taking the view that the purpose for which the assessee was established was a charitable purpose within the meaning section 2, clause (15), and the income of the assessee was exempt from tax under section 11. The question referred to us in each of these references must, therefore, be answered in favour of the assessee and against the revenue ." "Therefore, for the purpose to fall under the fourth head of "charitable purpose", it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit making activity. The word 'involving' in the restrictive clause is not without significance. An activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of advancement. In another case, it may be interwoven into the activity of advancement, so that the resulting activity has a dual nature or is twin faceted. Since we are concerned with the definition of "charitable purpose", and the definition defines in its entirety a "purpose" only, it will be more appropriate to speak of the purpose of profit making being enwrapped or enveloped in the purpose of the advancement of an object of general public utility or, in the other kind of case, the purpose of profit making being interwoven into the purpose or the advancement of that object giving rise to a purpose possessing a dual nature or twin facets. Now, section 2(15) clearly says that to constitute a "charitable purpose", the purpose of profit making must be excluded. In my opinion, the requirement is satisfied where there is either a total absence of the purpose of profit making or it is so insignificant compared to the purpose of advancement of the object of general public utility that the dominating role of the latter renders the former unworthy of account. In the profit making purpose holds a dominating role or even constitutes an equal component with the purpose of advancement of the object of general public utility, then clearly the definition in section 2(15) is not satisfied. When applying section 11, it is open to the tax authority in an appropriate case to pierce the veil of what is proclaimed on the surface by the document constituting the trust or establishing the institution, and enter into an ascertainment of the true purpose of the trust or institution. The true purpose must be genuinely and essentially charitable." It is, therefore, clear that the income derived from the property which was held for the religious and charitable purpose from the historical times and the commercial profit of the property as well as taxable profit i.e. capital gains were also utilised, for the charitable purpose of the trust. The facts clearly show that either commercial profit to the tune of Rs. 11,40,000 approximately or capital gains are much lesser than the amounts which were utilised for the purpose of the trust because during the year itself for the advancement of religious and charitable purpose, the appellant spent Rs. 20,70,509 on purchase of land and construction work for the temple and Sarai. Further, the appellant has submitted that as admitted by the assessing officer in his order, also applied sum of Rs. 2,61,730, which he was allowed deduction under section 11(l)(a) for charitable purpose of the trust.
The assessing officer and the learned Commissioner (Appeals) committed a mistake by taking entire receipt of Rs. 50,66,300 as income from the property. The income has to be given a commercial meaning and in terms of commercial sense for sale of property, the benefit of the cost of the property is also to be given. Therefore, under the facts and circumstances of the case, the appellant is entitled for total exemption under section 11(l)(a) of the Income Tax Act.
We will now discuss the scope of section 11(1A) of the Income Tax Act.
The appellant is also entitled for exemption under section 11(1A). Sec.
11(1A) is attracted in cases where capital asset being property is held under trust for charitable and religious purpose. The facts of the case is that property is held under trust for charitable and religious purposes from historical times. The second condition is that if the asset is transferred and the whole or any part of the net consideration (full value of the consideration as reduced by expenditure) is utilised for acquiring another capital to be held as a part of corpus of the trust or held as an asset in any form but is used for the purpose of the trust, then the capital gain arising from the transfer will be regarded as having been applied to charitable and religious purposes.
The facts of the case are that after the assets were acquired by the Government, the trust has purchased land, constructed Gurudwara, constructed shop complex and Sarai and utilised entire receipts for the creation of another capital asset for the purpose of aims and objects of the trust, The Hon'ble Supreme Court has confirmed the decision of the Hon'ble Gujarat High Court in the case of CIT v. Ambalal Sarabhai Trust (1988) 71 CTR (Guj) 30 : (1988) 173 ITR 683 (Guj) whereby it has been observed that even if sale consideration is invested in different assets but the same assets are utilised for the aims and objects of the trust, it will be deemed that the such trust is entitled to exemption in respect of capital gains arising from sale as per provisions of section 11(1A). The Hon'ble Gujarat High Court has given following observations : "If any doubt is left about the real nature of the transaction between the parties, it is set at rest by Expln. (iii) to section 11(1A), which has been extracted earlier. Net consideration as per the said Explanation would mean full value for the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. Now, in the present case, even if 90 per cent can be said not to have been received in cash by the seller, it cannot be gainsaid that it had really accrued to the seller, on account of the sale transaction in question. It is because this Explanation was not noticed by the Income Tax Officer, that he was promoted to take the view to the effect that share in accounts was not covered by the sweep of section 11(1A).
His view was rightly upset by the higher authorities. As a result of the aforesaid discussion, it must be held, agreeing with the Tribunal, that the capital assets belonging to the assesseetrust which were held wholly for charitable purposes were transferred and the whole on the net consideration thereof was utilised by the assessee-trust for acquiring another capital asset, viz., 10 per cent being invested in bank of India and balance in fixed deposits with the erstwhile purchasers of the capital asset. The provisions of section 11(1A), were, therefore, fully satisfied on the facts of the present case. As a result of this discussion, therefore, the questions referred for our opinion are answered.
The facts and circumstances of the case are squarely applicable in the case of the appellant.
The amount receipts are existing in the balance sheet of the appellant and in subsequent year balance sheet clearly shows that the receipts are in the form of asset which are definitely for the charitable and religious purpose of the trust. It is also worthwhile to note for subsequent years also the assessing officer has treated the spending as well as receipt of trust to be fully covered under section 11(l)(a) of the Income Tax Act. It will, therefore, be illogical to come to a conclusion that during the year under consideration, the appellant is not entitled to the benefit of earlier section 11(l)(a) or 11(1A). It is also interesting to note that the balance sheet for the subsequent year also revealed that net consideration has totally been invested in constructing the assets for the charitable and religious purpose of the trust. The circular of CBDT has clarified this matter that the consideration received from the sale of asset can be utilised in any other asset and CBDT has clarified that the subject-matter gives clear understanding for the purpose of section 11(l)(a). If the subject-matter of corpus is transferred and changed to different subject matter, even under those provisions, the purchase of different asset other than the corpus of the trust will also be entitled for exemption under section 11(1A) of the Income Tax Act.
The authorities below have relied on the decision of Hon'ble Madras High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities, (1982) 135 ITR 485 (Mad) and also on the decision of Bombay High Court in the case of Trustees of Shri Kot Hindu Shree Mandal v.CIT (1994) 116 CTR (Bom) 22 : (1994) 209 ITR 396 (Bom). These cases were cited by the appellant before the assessing officer. The case goes in favour of the appellant. The reason developed by the Hon'ble Madras High Court that the income is to be understood in proper perspective.
The Hon'ble Madras High Court has held that income from the properties held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by section 14. This shows that receipt from the sale transaction of the property to the appellant is to the tune of Rs, 50 lacs out of this appellant has spent Rs. 22 lacs, Rs. 2 lacs and odd for revenue expenditure and Rs. 20 lacs for acquiring new assets. In accordance with the decision and interpretation of the Hon'ble Madras High Court, the income of the appellant does not become taxable in a commercial sense because all the provisions of section 11(1A) have been fulfilled.
We have not appreciated the relevance regarding reliance on the decision of Bombay High Court in the case of Trustees of Shri Kot Hindu Stree Mandal v. CIT (supra) which has been referred in the order. The ratio is not relevant on the facts and circumstances of the case, even remotedly. The learned Commissioner (Appeals) has relied on the decision of Addl. CTT v. A.L.N. Rao Charitable Trust (1995) 129 CTR (SC) 205 : (1995) 216 ITR 697 (SC). The ratio decided in A.L.N. Rao Charitable Trust was dealing with section 11(2) read with section 11(l)(a) of the Act. The learned Commissioner (Appeals) has not applied ratio correctly because what was to be decided before applying section 11(l)(a) was the income earned from the property. During the year under consideration, the income earned from the property is to be taken from the commercial sense. The income earned from the property can never be gross receipt in case of sale of the property but can only be net profit whatever one may call the net receipt. For the tax purpose, we call the same as capital gain, The cost can never be income but cost is to be reduced from the receipts. The gross sale proceeds of the appellant during the year under consideration are only to the tune of Rs. 50,66,300. The cost of the property is much more both from sentimental as well as commercial aspect. The property was compulsorily acquired by the Punjab Government for safety of Golden Temples Complex.
The assessing officer has accepted that the cost of property was valuable and worked at Rs. 30 lakhs. We have estimated the same at Rs. 38.62 lakhs. The income from property cannot be more than Rs. 11.38 lakhs. Under no circumstances, it can be more than Rs. 22 lakhs which was admitted to have been spent for religious and charitable purpose.
The Hon'ble Supreme Court in the case of J.K. Trust v. CIT (1957) 32 ITR 535 (SC) has given broader meaning to the word 'property' mentioned in section 11(1)(a) of the Income Tax Act. The Hon'ble Supreme Court has observed that the property also includes business or any interest which a person may acquire, hold and enjoy. The Hon'ble Supreme Court, applied this decision again in the case of CIT v. P. Krishna Warnar (1964) 53 ITR 176 (SC) and Dharmaposhanam Co. v. CIT 1978 CTR (SQ) 114 : (1978) 114 ITR 463 (SC). In the case of Dharmadeepti Co. v. CIT 1978 CTR (SC) 120 : (1978) 114 ITR 454 (SC), the Hon'ble Supreme Court has held that if the business income is applied for charitable purpose, the income from such business will be exempt under section 11 (1) (a) of the Income Tax Act.
21. The Hon'ble Supreme Court in the case of CIT v. A.L.N. Rao Charitable Trust (supra), has given finding of law that provisions of sub-section (2) of section 11 gets attracted if any income is left over after application of income for charitable and religious purpose as envisaged by section 11(l)(a) of the Income Tax Act. In the case of the appellant, as discussed earlier, in this order, there is no income left over which requires to be applied under section 11(2) of the Income Tax Act. The Hon'ble Supreme Court has observed that section 11(l)(a) is a separate operative statute of the Act. The trust has to apply income earned during the year from the properties which includes business and has to actually spend for the charitable and religious purpose. It is only out of unspent accumulated income, the section 11(l)(a) is attracted whereby 25 per cent of such property income is to be accumulated and invested in listed investments, We are, therefore, of the opinion that the appellant has satisfied the condition laid under section 11(l)(a) of the Income Tax Act and therefore, he is entitled for exemption of the income received from the property under consideration from both commercial sense as well as from the interpretation of income in accordance with the Income Tax Act. We have also given our finding that the appellant had also fulfilled the conditions envisaged under section 11(1A) of the Income Tax Act. We have given our finding regarding the original cost of the property as on 1st April, 1974 which we have estimated at Rs. 38,62,500 and the capital gain is to be calculated in accordance with the law relatable to capital gains including relief under section 80T. We, therefore, are of the opinion that the appellant has fulfilled all the conditions envisaged under section 11(l)(a) of the Income Tax Act. Therefore, income of the appellant is exempted from the Income Tax Act, The appellant has also taken ground regarding charging of interest under sections 234A and 234B of the Income Tax Act. The assessing officer charged interest under section 234A as well as section 234B of the Income Tax Act, The appellant took specific ground before the learned Commissioner (Appeals) and the learned Commissioner (Appeals) observed that the contention of the appellant that sections 234A and 234B are not applicable in case of trust is not accepted. The learned Commissioner (Appeals) observed that the provisions are mandatory and same are attracted in accordance with the law, Aggrieved against the order, passed by the learned Commissioner (Appeals), the appellant filed an appeal before us.
The learned counsel of the appellant pleaded that the appellant was having bona fide belief that the income is going to be below taxable limit, therefore, he did not file estimate of advance tax as well as there was delay in filing of the return. The learned counsel relied on the decision of Hon'ble Patna High Court in the case of Ranchi Club Ltd. v. CIT (1996) 131 CTR (Pat) 368. The learned counsel pleaded that the Hon'ble Patna High Court has held that additional liability to pay interest arises only on account of delay and non-filing of return or payment of advance tax. The learned counsel pleaded that the learned Commissioner (Appeals) as well as other Judicial Authorities have to intervene regarding the levy of interest under sections 234A and 234B of the Income Tax Act.
So far as Explanation 4 attached with section 234A is concerned, we are of the opinion that the same is applicable on facts and circumstances of the case. The Explanation reads as follows : Explanation 4.-In this sub-section, 'tax on the total income as determined under sub-section (1) of section 143 or on regular assessment' shall, for the purpose of computing the interest payable under section 140A, be deemed to be tax on total income as declared in the return." The Explanation takes it clear that interest is to be computed and calculated if there is any tax due under section 140A. The interpretation of the Explanation is that interest is to be calculated on the tax which is due on the income returned by the appellant. In the case of the appellant, the income has been returned at 'Nil', therefore, no tax under section 140A becomes payable, consequently, no interest under section 234A becomes chargeable.
So far as interest under section 234B is concerned, section 234B relates to interest for default in payment of advance tax. The appellant has throughout been assessed at 'nil' income in the past and in the future. Therefore, whether appellant was liable to pay advance tax under section 209 is a relevant point, for deciding the charging of interest under section 234B of the Income Tax Act.
We are of the opinion that during the year under consideration, the appellant was liable to pay advance tax under section 208 and therefore, we are of the opinion that section 234B is also not attracted on the facts and circumstances of the case.