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Karam Chand Thapar Memorial Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1982)1ITD831(Kol.)
AppellantKaram Chand Thapar Memorial
Respondentincome-tax Officer
Excerpt:
.....of capital gains arising on sale of shares and also the voluntary contributions received from mohini thapar charitable trust. the appeal relates to the assessment year 1971-72 for which the accounting year ended 28-9-1971. in this appeal the assessee has taken two grounds challenging the decision of the commissioner (appeals), which are dealt with hereunder : 2. the first ground relates to the assessment of capital gains of rs. 90,610 as income which arose on sale of investments to mohini thapar charitable trust, calcutta. the assessee claimed exemption of capital gains as the assessee invested the entire sale proceeds of the investments, including capital gains, with mohini thapar charitable trust, calcutta, at interest and, therefore, satisfied the condition in section 11(1a)(a).....
Judgment:
1. This is an appeal by Karam Chand Thapar Memorial Charitable Trust, Calcutta, which is directed against the order of the Commissioner (Appeals) dated 23-5-1980 wherein he has sustained the assessment of capital gains arising on sale of shares and also the voluntary contributions received from Mohini Thapar Charitable Trust. The appeal relates to the assessment year 1971-72 for which the accounting year ended 28-9-1971. In this appeal the assessee has taken two grounds challenging the decision of the Commissioner (Appeals), which are dealt with hereunder : 2. The first ground relates to the assessment of capital gains of Rs. 90,610 as income which arose on sale of investments to Mohini Thapar Charitable Trust, Calcutta. The assessee claimed exemption of capital gains as the assessee invested the entire sale proceeds of the investments, including capital gains, with Mohini Thapar Charitable Trust, Calcutta, at interest and, therefore, satisfied the condition in Section 11(1A)(a) of the Income-tax Act, 1961 ("the Act"). This plea did not prevail with the ITO who held that the assessee has not acquired another capital asset as contemplated in the Act inasmuch the loan is not a capital assest as defined in Section 2(14) of the Act.

Therefore, he subjected the capital gains to tax. In this connection, it is to be observed that it was admitted by the assessee's representative that the trust's funds were invested in Karamchand Thapar & Bros. (P.) Ltd. and it exceeded 5 per cent of capital of that concern and, therefore, the exemption under Section 11 was not available to the assessee. The ITO has also stated that the assessee having sold the investments to Mohini Thapar Charitable Trust at less than the market value, exemption is not available to the assessee-trust.

3. On appeal, the assessee reiterated this contention but the Commissioner (Appeals), agreeing with the decision of the ITO, confirmed the assessment and rejected the claim of the assessee.

4. At the time of hearing, the learned counsel for the assessee has been heard at great length. He has referred to various provisions of law that existed for the year under consideration. On this basis, he contended that the investment, by way of deposits of the entire sale proceeds, made with Mohini Thapar Charitable Trust for interest, constituted acquiring of another capital asset and, therefore, the condition in Section 11(1A)(a) has been satisfied. Accordingly, he contended that the ITO ought not to have subjected the capital gains to tax. The learned departmental representative has been heard and has solely relied on the orders of the authorities.

5. We have duly considered the facts of the case and the rival contentions urged on behalf of both the parties. Section 11 excludes income derived from property "held under trust wholly for charitable or religious purposes" to the extent to which such income is applied to such purposes in India. Therefore, the property, income from which is the subject-matter of exemption, is to be necessarily held under trust.

Presuming that the investments sold by the trust to Mohini Thapar Charitable Trust were held under trust, on the sale of such investments there is divesting or transferring of such assets which were held in trust. The sale proceeds of the investments along with other funds were deposited with Mohini Thapar Charitable Trust for interest. It is to be seen whether such deposits or loans constituted acquisition of another capital asset to be so held for the purpose of Section 11. In this connection, the definitions of "capital asset" given in Section 2(14), "cost of transferred assets" and "net consideration" appearing in Explanation to Section 11(1A), are very much relevant. After due consideration of the aforesaid provisions, it is clear that the deposits with Mohini Thapar Charitable Trust did not amount to acquisition of another capital asset to be so held under trust wholly for charitable or religious purposes as contemplated by Section 11. The deposits do not satisfy Sections 48, 49 and 55 also. No doubt, the sale proceeds constitute liquid asset. If the voluntary contributions of cash are received by a charitable trust or institution with a specific direction to constitute them as corpus of the trust, they are not treated as income but as capital asset. The intention of treating the voluntary contributions in cash as capital asset, is too well manifested to require explanation. There are specific provisions in Section 13(2) with regard to lending of income or property and investment of funds of the trust in any concern in which the persons, specified in Section 13(3), have substantial interest. In other words, there are specific clauses dealing with specific aspects of utilisation of income or funds of the trust. There is nothing on record to show that the said deposits with Mohini Thapar Charitable Trust were actually held under trust wholly for charitable or religious purposes.

In the circumstances, therefore, we agree with the decision of the lower authorities and, accordingly, the assessment of capital gains is confirmed.

6. The next ground relates to the assessment of voluntary contributions of Rs. 21 lakhs received from Mohini Thapar Charitable Trust as income of the assessee-trust. The ITO has assessed such voluntary contributions on the ground that the exemption under Section 11 was not available to the assessee-trust.

7. On appeal, it was contended that the entire contributions were exempt, but the Commissioner (Appeals), did not accept such contention and confirmed the assessment. At the time of hearing, the learned counsel for the assessee has specifically brought to our notice the provisions of Section 12, as it existed during the year under consideration, and before amendment by the Finance Act, 1972, which came into force from 1-4-1973. According to him, the voluntary contributions received from Mohini Thapar Charitable Trust would be liable for assessment if the income of that trust was exempt under Section 11 and not otherwise. A copy of the assessment order for the assessment year 1972-73 of the said Mohini Thapar Charitable Trust was filed in the paper book which shows that exemption under Section 11 was denied to it on the basis of the admission of the ground that the investment of the said Trust with Karamchand Thapar & Bros. (P.) Ltd. exceeded 5 per cent of capital of that Concern and, therefore, the exemption was hit by Section 13(2) of the Act. On the basis of this position, the learned counsel for the assessee contended that inasmuch as the income of Mohini Thapar Charitable Trust was not exempt under Section 11, Section 12(2) was not applicable and, therefore, the assessee's case squarely falls within Section 12(1) of the Act, as it existed in the year of account. Section 12(1), as it existed at the relevant accounting year, exempted the income derived by a trust for charitable or religious purposes from voluntary contributions and applied solely to charitable or religious purposes from voluntary contributions and applied solely to charitable or religious purposes.

This provision was quite independent of Section 11 and, therefore, the conditions laid down in Section 11 were not required to be fulfilled by the assessee. The learned departmental representative supported the orders of the authorities on this point.

8. After due consideration of the rival submissions and the paper book filed, we hold that Section 12(2) was not attracted so far as the voluntary contributions received by the trust were concerned and Section 12(1), as it existed in the year of account, exempted such contributions. Therefore, there is merit in the contention of the learned counsel for the assessee and, accordingly, we hold that the authorities were not justified in assessing the voluntary contributions received from Mohini Thapar Charitable Trust.


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