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Trustees of Harikishandas Vs. Eighth Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1985)13ITD648(Mum.)
AppellantTrustees of Harikishandas
RespondentEighth Income-tax Officer
Excerpt:
.....the extent specified therein. the ito has observed that the assessee had invested rs. 2,20,000 in fixed deposits with maharashtra state road transport corporation (msrtc) and that it had been contended on behalf of the assessee that the said investment amounted to utilisation of the consideration for acquiring another capital asset to be held wholly for charitable purposes and, as such, the said amount would be deemed to have been applied for the charitable purposes as laid down in section 11(1a). the ito rejected the said contention. according to him, fixed deposit was not a capital asset and, as such, the provisions of section 11(1a) were not attracted.3. the attention of the ito was drawn to instruction no. 883 dated 24-9-1975 issued by the board, where it had been stated as under :.....
Judgment:
2. The assessee is a charitable trust assessed through the trustees. In the relevant accounting year the assessee-trust sold certain lands for Rs. 4,42,160 resulting in capital gain of Rs. 2,17,210. Section 11(1A) of the Income-tax Act, 1961 ('the Act'), provides that 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 therein. The ITO has observed that the assessee had invested Rs. 2,20,000 in fixed deposits with Maharashtra State Road Transport Corporation (MSRTC) and that it had been contended on behalf of the assessee that the said investment amounted to utilisation of the consideration for acquiring another capital asset to be held wholly for charitable purposes and, as such, the said amount would be deemed to have been applied for the charitable purposes as laid down in Section 11(1A). The ITO rejected the said contention. According to him, fixed deposit was not a capital asset and, as such, the provisions of Section 11(1A) were not attracted.

3. The attention of the ITO was drawn to Instruction No. 883 dated 24-9-1975 issued by the Board, where it had been stated as under : The Board had occasion to examine whether investment of the net consideration in fixed deposits with a bank would be regarded as utilisation of the amount of net consideration for acquiring 'another capital asset', within the meaning of Section 11(1A) of the Income-tax Act, 1961. The Board has been advised that investments of net consideration in fixed deposits with a bank for a period of six months or above would be regarded as utilisation of net consideration for acquiring another capital asset within the meaning of Section 11(1A) of the Income-tax Act, 1961.

4. The ITO observed that the above instruction would not be applicable because in the present case the investments were in fixed deposit, not with a bank, but with State Road Transport Corporation, which was a public limited company. The said instruction of the Board according to him, applied only to the fixed deposit in a bank and not to fixed deposit in any other corporation or concern.

5. In the appeal filed by the assessee, the following two grounds were raised before the AAC : Your appellant submits that the capital gains arising on transfer of land being property held under trust was deemed to have been applied for charitable purposes since the appellant acquired another capital asset, namely, deposit of Rs. 2,20,000 in Maharashtra State Road Transport Corporation.

Without prejudice to the above, your appellant submits that they are entitled to accumulation under Section 11(2) of the Act in respect of the amount of Rs. 2,17,210 as all the formalities in connection with the same were duly complied with by them.

6. As regards the first ground of appeal, the learned AAC held that the fixed deposit in MSRTC was not a capital asset within the meaning of that expression in Section 11(1A), and as such, the investment in the said fixed deposit would not amount to utilisation in acquiring another capital asset within the meaning of the said section. As regards Instruction No. 883 issued by the Board, he observed that the said instruction contained a concession in respect of fixed deposit with a bank and that the said instruction would not bring fixed deposit in MSRTC within the ambit of expression 'capital asset' in Section 11(1A).

As regards the second ground in the memorandum of appeal, which was an alternate of the first ground, he relied on certain decisions of the Tribunal and directed the ITO to allow exemption under Section 11(2)(a) on being satisfied that the conditions prescribed under Section 11(2)(b) thereof had been satisfied. Thus, he granted the alternate relief claimed by the assessee.

7. The assessee has now come in appeal before us and the ground raised in the appeal is that the learned AAC had erred in holding that the deposit of Rs. 2,20,000 in MSRTC was not a capital asset for the purposes of Section 11(1A) and thereby not treating the said amount as deemed to have been applied for the charitable purposes. The contention of the learned representative for the assessee is that investment of an amount of Rs. 2,20,000 in fixed deposit with MSRTC would amount to acquisition of capital asset within the meaning of that expression in Section 11(1A). Reliance is placed on Instruction No. 883 issued by the Board. On the other hand, the contention on behalf of the department is that such investment does not amount to acquisition of a capital asset, within the meaning of Section 11(1A) and as such, the said investment would not give rise to an inference that capital gain arising from the transfer had been applied for the charitable or religious purposes. Our attention was drawn to several definitions of the term 'capital assets'.

8. We have considered the rival submissions and facts on record. It is an admitted fact that the transfer of assets held by the assessee-trust gave rise to capital gain of Rs. 2,17,210. The said capital gain amounted to the income of the trust. The assessee could get exemption under Section 11(1) only if the assessee applied the said income for charitable or religious purposes, or if the assessee accumulated or set apart the said income and that the said accumulation or setting apart was not in excess of 25 per cent of the said income. Section 11(1A) gave another option to the assessee in respect of the income by way of capital gain. That option was to utilise the whole of the net consideration received by the assessee from the transfer of the capital assets for acquiring another capital asset to be held for the charitable purposes. Consequently, in order to obtain the benefit of Section 11(1A), the assessee had to utilise the net consideration received on transfer of the capital asset in acquiring another capital asset to be held for the charitable purposes.

9. It was submitted before us that the net consideration received by the assessee was Rs. 9,42,160. The net consideration received by the assessee had to be invested in acquiring another capital asset, if the assessee wanted exemption under Section 11(1A), in respect of capital gains of Rs. 2,17,210. In the present case, the ITO or the AAC does not appear to have investigated the question whether the net consideration received on transfer of the lands had been invested by the assessee in acquiring another capital asset. Perhaps, the impression of all concerned was that what all that was required under Section 11(1A) was utilisation of the capital gains in acquiring new asset. This impression was obviously erroneous. That is because Section 11(1A) envisages utilisation of the net consideration of transfer in acquiring another capital asset for claiming exemption in respect of whole of the capital gains and not utilisation of mere capital gains in acquiring new capital asset. The real inquiry before the ITO should have been whether the net consideration received on transfer had been utilised in acquiring new capital asset. That enquiry was not made. The enquiry appears to have been confined to the question whether the amount of Rs. 2,20,000 (which roughly represented the capital gains) had been utilised for acquiring another capital asset. Consequently, even if we hold that investment of Rs. 2,20,000 in fixed deposit with MSRTC amounted to acquisition of new capital asset that would not entitle the assessee to claim exemption under Section 11(1A) in respect of the whole of the capital gains amounting to Rs. 2,17,210, that would entitle the assessee to claim exemption of so much the said amount as is equal to the amount by which the amount utilised for acquiring another capital asset exceeds the cost of the transferred asset see Sub-clause (ii) of Section 11(1A)(a).

10. We shall now consider the question whether investment in fixed deposit with MSRTC amounted to acquisition of another capital asset.

The term 'capital asset' has been defined in Section 2(14) as property of any kind held by an assessee, whether or not connected with his business or profession, but excluding any stock-in-trade, consumable stores or raw materials and personal effects, etc. The fixed deposit receipt is only an acknowledgement by MSRTC that a particular amount of the assessee was lying in deposit with it and that the said amount would be repaid with interest. Such a receipt would not constitute a capital asset. Term capital asset in the present context would mean such property, the transfer of which would give rise to either capital gain or capital loss. Fixed deposit receipt would not come under this category. Consequently, fixed deposit in MSRTC would not amount to acquisition of new capital asset within the meaning of that expression in Section 11(1A).

11. It is true that Instruction No. 883 issued by the Board directs the ITO to treat investment of the net consideration in fixed deposit with a bank for a period of six months or above as acquisition of another capital asset within the meaning of Section 11(1A). However, that instruction should be confined to investment in fixed deposit with a bank. That instruction would not apply to investment in fixed deposit with any other person or company.

12. The contention on behalf of the assessee is that in Instruction No.883, it has been mentioned that the Board had been advised on that point and this indicated that the said instruction applied to investments in fixed deposits with Government corporation like MSRTC.We are unable to agree with this contention. There is no indication in Instruction No. 883 that the same should be applied to investment in fixed deposit with any other Government organisation. If the fixed deposit itself was a capital asset, the fixed deposit with a private person would equally to be a capital asset. In that case a trust could invest the entire net consideration in fixed deposit with any private person and claim exemption in respect of the whole of capital gain.

Obviously, this could not have been the intention of the provision in Section 11(1A). Consequently, Instruction No. 883 should be confined to fixed deposit with a bank. That instruction cannot be extended to fixed deposit with any other person as organisation. In the circumstances, we hold that investment of Rs. 2,20,000 in fixed deposit with MSRTC did not amount to acquiring another capital asset within the meaning of Section 11(1A). The lower authorities were, therefore, justified in not granting exemption under Section 11(1A). As already stated, the AAC has granted the alternate relief claimed under Section 11(2).


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