1. The assessee is a trust. Its original assessment for the assessment year 1976-77 was completed by the ITO on 12-3-1979. In this assessment was included an item of short-term capital gains of Rs. 1,790 being the surplus on the sale of 1,750 shares in the Great Eastern Shipping Co.
Ltd. These shares were sold for Rs. 4,40,420. The capital gains on the sale of these shares amounted to Rs. 3,52,950. On a perusal of the record of the assessee, the Commissioner was of the opinion that deducting from this amount of Rs. 3,52,950 (i) the income deemed to have been applied under Section 11(1A) of the Income-tax Act, 1961 ('the Act'), and (ii) the cost of shares, there was still a surplus of Rs. 1,39,325 which should have been taxed as income 'not applied'. The Commissioner furnished the details of this computation to the assessee and called upon the assessee to show cause why this item should not be subjected to tax under Section 263 of the Act. After considering the objections on behalf of the assessee, the Commissioner set aside the assessment, observing that the ITO had erroneously taxed only an amount of Rs. 1,790 instead of the amount of Rs. 1,39,325 as stated above. He left the option of varying the figure of Rs. 1,39,325 to the ITO by working out the cost of the shares as per Section 49(1)(ii) of the Act.
He further held that the sale proceeds of the shares to the extent of Rs. 1,27,200 which were invested in units on 29-9-1976 were not as per the requirements of Section 11(1A).
2. The assessee is in appeal, on the ground that the Commissioner had erred in holding that the assessment passed by the ITO was prejudicial to the interest of the revenue. It is the assessee's objection that the Commissioner had erred in holding that the assessee had not acquired another capital asset as per the provisions of Section 11(1A).
Therefore, it is claimed that the order of the Commissioner under Section 263 may be vacated.
3. During the course of the hearing of the appeal, the learned counsel for the assessee has mainly objected to the Commissioner's finding that the investment of Rs. 1,27,200 made on 29-9-1976 in the purchase of 12,000 units was outside the time limit laid down under Section 11(1A).
She argued that the sale proceeds amounting to Rs. 1,27,200 were received by the assessee on 29-9-1976. The assessee proceeded to invest these sale proceeds within six months of receipt from the purchaser of the shares. There was no delay or laches on the part of the assessee in complying with the provisions of Section 11(1A). Therefore, the assessee should be deemed to have invested the income from the capital gains in a capital asset within the time permitted in Section 11(1A).
On behalf of the revenue, our attention is invited to the provisions of Section 11(2), according to which the assessee had an option of having so much of the income applied to such purposes in India during the previous year, immediately following the previous year in which the income was derived as did not exceed the said amount of 75 per cent of the income. The assessee could exercise the option within the time availing for filing the return of income for the year under consideration. Having failed to file this option, the Commissioner was fully justified in treating the income from the capital gains not applied for the purposes of the trust, as liable to tax.
4. We have carefully considered the facts of the case and the submissions on either side. The plain fact is that the assessee had not applied the funds to the extent of Rs. 1,27,200 representing the capital gains arising on the sale of the shares in the Great Eastern Shipping Co. Ltd. within the previous year relevant for the assessment year under consideration. The explanation furnished is that the funds came into the possession of the assessee as late as on 29-3-1976. The assessee's accounting period came to an end three days thereafter. The learned counsel for the assessee pleaded helplessness on the part of the assessee to invest the funds within such a short time. What is requested is a reasonable period for the investment of the funds. It is stated that the law does not make any provision on this issue and we should construe what should be the reasonable period of time which could be made available to the assessee for this purpose. In our opinion, the assessee was labouring under a misapprehension of law in believing that the law did not provide for the application of the funds beyond the end of the previous year. We are entirely in agreement with the learned departmental representative when he submitted that the assessee's income from capital gains on sale of shares was as much a part of total income as from any other source. If the assessee so desired, it could have exercised the option available to it under Section 11(2) for applying the income arising on the sale of the shares in the Great Eastern Shipping Co. Ltd. beyond the end of the accounting period. For this purpose all that the assessee had to do was to exercise the option under Section 11(2) which should have been done before the expiry of the time allowed under Section 139(1) or 139(2) of the Act for filing the return of income for the year. Since admittedly this option has not been exercised, the assessee could not have applied the income in the next previous year for exemption under Section 11(1A). In the circumstances, in our opinion, the Commissioner was justified in holding that the assessee was ineligible for relief under Section 11(1A) in respect of the item of Rs. 1,39,325 being the capital gains earned by the assessee from the sale of shares. We, therefore, decline to interfere with the order of the Commissioner.