Income Tax Appellate Tribunal - Ahmedabad
Smt. Maniben Hirji Jadavji Bhatt & Smt. ... vs Income-Tax Officer on 31 January, 1997
ORDER
B.L. Chhibber, A.M.
1. The following two grounds have been raised by the assessee in this appeal directed against the order of the CIT(A) I, Rajkot :
"(1) That the learned CIT(A) erred in law and on facts in rejecting the appellant's contention that on the facts and in the circumstances of the case, where mere advance under the agreement for sale was received, but no possession of the property had been parted with during the year under appeal there would be no liability to capital gains, since there was no transfer within the meaning of s. 2(47) of the IT Act. That the learned CIT(A) further erred in law and on facts in failing to appreciate the correct factual position that the transfer effectively took place only at the time of the final execution of the sale deed when the physical possession of the respective plots were handed over to the final purchasers."
(2) That the learned CIT(A) erred in law and on facts in upholding the contention of the AO that the exemption of the trust stood forfeited and that the trust could not avail the benefit of exemption under s. 11(1A) of the IT Act. That the learned CIT(A) further erred in law and on facts in summarily brushing aside the elaborate submissions of the appellant in regard to its claim for entitlement of exemption under s. 11 of the IT Act."
2. The assessee is a charitable trust settled under the trust deed executed on 31st March, 1984 by Shri Jayanti Lal Hirjibhai Bhatt and his wife Smt. Saraswati Jayantilal Hirjibhai Bhatt; both residents of Junagadh, with the following aims and objects :
(i) To develop the education and sanskrit language and to develop the cow generation and to give such knowledge to common people of India to built the strong culture and unity of Indian people,
(ii) To build the sanskrit pathshalas schools, colleges and research centres for the canvassing of sanskrit language and to attract the students for sanskrit language knowledge,
(iii) Over and above sanskrit literature any kind of other literatures and subjects should be involved in the canvassing for the colleges, research centres liabraries, boardings and to build up abovementioned institutions. And to publish the study books and to circulate such literature without any charge to poor students, scholars students, and to give prizes to scholars and to help poor students, In short to make every activity for developing of educational activities in every field.
(iv) Since long the culture and civilization of Bharat Desh depends upon the agricultural activities and so India is considered as agricultural country and this happened only due to development of Cow generation and by this way we can get cow-dung, butter, milk and fertilizers and cheap labour and due to use of cow dungs fertilisers, we get pure desi grains, pulses, vegetables, and nourishing milk, curds and every thing for our health. These kinds of all things protect us for this reason to develop the cow generation and its healthy breeding and all activities are involved in the objects of this trust; in short to make every effort for developing cow generation.
The trust was duly granted registration by the office of the Charity Commissioner, Junagadh vide his certificate, dt. 21st June, 1984. The trust was also granted registration under s. 12A of the IT Act by the CIT, Rajkot under his letter, dt. 20th October, 1984. Upto asst. yr. 1991-92, the assessee-trust did not derive any substantial income and hence no IT returns were filed. During the accounting year 1991-92 relevant to asst. yr. 1992-93, the assessee-trust decided to sell its immovable property comprising of land and thus raised liquid resources for the trust. For the said purpose the trust entered into an agreement for sale of land with M/s Sahyog Enterprises, a partnership firm. The agreement for sale of land was executed by the trust on 21st June, 1992 for an agreed sale consideration of Rs. 52,50,000. At the time of execution of the agreement for sale, an advance of Rs. 5,25,000 was received and a further advance of Rs. 16,75,000 was also received during the accounting year under consideration. Thus, a total of Rs. 22,00,000 was received by the trust during the accounting year 1991-92, which came to be invested in duly approved investments being fixed deposits with nationalised banks and post offices. The following important terms and conditions were stipulated under the agreement for sale :
"(a) Since the land under consideration belonged to a public charitable trust, necessary prior permission from the office of the Charity Commissioner was to be obtained and the agreement was to be implemented subject to this.
(b) Moreover, necessary condition and prior approval of the office of the Collector at Junagadh was also to be obtained;
(c) The physical possession of the land was to be handed over by the appellant Trust to the purchasers only upon the execution of the final sale deed".
The above terms and conditions were clearly recorded in art. (3) of the agreement of sale and the agreement was subject to the fulfilment of the abovereferred conditions.
2.1 The necessary permission from the office of the Charity Commissioner allowing sale of land in terms of the agreement for sale was received on 7th October, 1991. Further, the Collector of Junagadh granted permission to the trust for sale of land vide his permission letter, dt. 31st March, 1992.
2.2 The AO was of the opinion that since the assessee-trust had entered into the agreement for sale of land on 20th June, 1984 and had also received consideration of Rs. 22 lacs during the period relevant to the asst. yr. 1992-93, therefore, the entire capital gains arising out of the sale of land is chargeable in the asst. yr. 1992-93.
He worked out such capital gains, by taking the entire sale consideration of land at Rs. 56,38,015 and after deducting the cost of land and the statutory deduction, etc., at Rs. 28,02,860. In para 13 the AO has observed that as per the definition of "transfer" in relation to capital assets under s. 2(47) which has become more wide w.e.f. 1st April, 1988 for the purpose of capital gains, the transfer is treated as complete when the agreement to sell/buy the immovable property is entered into. The assessee claimed before the AO that it was entitled to exemption under ss. 11 and 12 of the IT Act. In paras 16 to 18 of the assessment order the AO has discussed his contentions in regard to the exemption available to the trust under s. 11 of the Act where he has finally held that exemption claimed under ss. 11 and 12 "is forfeited". The reasons in brief adduced by the AO for withdrawal of exemption are as under :
(i) The assessee-trust has not fulfilled the statutory requirements and contravened the provisions of s. 139(4A) in relation to filing of the return by the due date prescribed under s. 139(1).
(ii) The trust has not carried out any charitable activities and can not enjoy exemption under s. 11.
(iii) The Form No. 10 required to be filed as per the provisions of s. 11(2) has not been so filed before the expiry of the allowed (sic) under s. 139(1) for furnishing the return of income.
(iv) There was no approved resolution by the trustees of the trust for purposes of accumulation of income as required by the provisions of s. 11(2).
3. On appeal, the learned CIT(A) concurred with the findings of the AO observing as under :
"4. I have considered the rival submissions. In my opinion, the principle underlined in the Madras High Court decision in the case of CIT vs. Ootacamund Gymkhana Club (1977) 110 ITR 392 (Mad), is very much relevant to the facts of the case. It is also seen that ever since its inception, the trust had not carried out any activities towards the object for which it was created. As a matter of fact, from the details of the expenditure, filed, for asst. yr. 1992-93 (the trust had uptil then had not filed any IT returns, it is seen that the major portion of the expenditure had been incurred for a cause (donated to another trust also created by the founders of the appellant trust) which would not justify appellant's seeking exemption under s. 11 of the IT Act. Further, the IT Act has clearly laid down specific conditions enumerated in s. 11(2) which are required to be satisfied for claiming the exemption under s. 11/11(A) and therefore, looking to the facts and circumstances of the case, I decline to agree with the Authorised Representative that a condition can be of academic interest only. Also, in my opinion, in view of s. 2(47), sub-cl. (v) introduced w.e.f. 1st April, 1988, the decision of the AO to tax long-term capital gains in asst. yr. 1992-93 is in order. Thus, the appeal fails on all the four grounds."
4. Shri M. M. Patel, the learned counsel for the assessee submitted that the CIT(A) erred in law and on facts in rejecting the assessee's contention that where mere advance under the agreement for sale was received but no possession of the property had been parted with during the year under appeal, there would be no liability to capital gains, since there was no transfer within the meaning of s. 2(47) of the Act. He drew our attention to s. 2 (47) as amended by the Finance Act, 1987 which introduced sub-cl. (v) within the inclusive definition of the term "transfer" and also drew our attention to Departmental Circular No. 495, dt. 22nd September, 1987 which explains this legislative amendment as under :
"The definition (of transfer) also does not cover cases where possession is allowed to be taken or retained in part-performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882. New sub-cls. (v) & (vi) have been inserted in s. 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above."
According to the learned counsel for the assessee, the above referred CBDT Circular amply clarifies the legal position in relation to the extended meaning of the term "transfer". If along with the acceptance of some consideration under an agreement for sale, the vendor allows the possession of the property to be taken or retained by the purchaser, the transfer would be complete at that point of time.
However, in a case, as in the present case, where mere advance under the agreement for sale is received, but no possession has been parted with during the year under consideration, there would be no liability to capital gains, since there would be no transfer within the meaning of s. 2(47). The learned counsel submitted that in the present case, the transfer effectively took place only at the time of the final execution of the sale deed, when the physical possession of the respective plots were handed over to the final purchasers. According to the assessee's counsel, in fact, the assessee Trust was not in a position to hand over the possession at all until 31st of March, 1992 since the final permission from the office of the Collector, Junagadh was received only in April, 1992. He, therefore, submitted that the conclusion drawn by the AO in regard to the chargeability of the capital gains during the asst. yr. 1992-93 is wholly unjustified and altogether untenable in law.
4.1 As regards exemption under s. 11 of the Act, the learned counsel for the assessee submitted that the CIT(A) erred in law and on facts in upholding the observation of the AO that the exemption of the trust stood forfeited and that the trust could not avail the benefit of exemption under s. 11(1A) of the Act. He further submitted that the CIT(A) erred in law and on facts in summarily brushing aside the elaborate submissions of the assessee in regard to its claim for entitlement of exemption under s. 11 of the Act. The learned counsel for the assessee submitted that it is not the case of the AO that any of the provisions of s. 13 are attracted or liable to be invoked in the case of the assessee-trust. Further the AO has not disputed the genuineness in regard to the registration of the trust by both the Charity Commissioner and also the CIT under s. 12A of the IT Act. According to the learned counsel, the ground of late filing of return cannot support the AO's contention of forfeiting the exemption under s. 11. As regards the charge of the AO that the assessee-trust did not carry out any charitable activities until 1st February, 1992, the learned counsel submitted that the assessee-trust did not have liquid resources to carry on activities for charitable purposes and it is for this reason that the trust decided to liquidate its asset being land so as to raise liquid resources which would enable it in carrying out of such activities. He submitted that the assessee enjoyed exemption under ss. 11 and 12 of the Act in all preceding years and also in the subsequent assessment year i.e. 1993-94. In this regard he drew our attention to the order of the AO passed under s. 143(3) relating to asst. yr. 1993-94 placed at p. 97 of the paper-book.
4.2 As regards the charge of the AO that notice in Form No. 10 was not filed before the prescribed time under s. 139(1) for furnishing the return of income, the learned counsel submitted that considering the total income of the trust, for the year, more than 75 per cent of the income was already spent during the year and hence there was no real necessity for the trust to file notice in Form No. 10. Such notice was only out of abundant caution and the same was only of academic importance on the facts of the present case and consequently the question whether resolution of the trustees was validly available on record or not is once again of academic importance. The learned counsel for the assessee, therefore, concluded that the action of the AO assessing the capital gains during the year under appeal and further the action of the CIT(A) in confirming the stand taken by the AO is unjustified both in law and on facts of the case.
5. Shri P. N. Dixit, the learned Departmental Representative strongly supported the orders of the authorities below. He drew our attention to the amended provisions of s. 2(47) and submitted that since the deed of sale was executed during the year under appeal and part of the consideration was duly received by the assessee, the assessee was liable to pay tax on capital gains. He further submitted that since no charitable activities were carried on by the assessee-trust, it was not entitled to exemption under ss. 11 and 12 of the Act.
6. We have, considered the rival submissions and perused the facts on record. Basically we are required to adjudicate on two issues. viz. whether the assessee-trust is liable to be assessed for capital gains on sale of land during the year under appeal and secondly whether the assessee is a charitable trust entitled to exemption under ss. 11 and 12 of the IT Act. There is no doubt that the assessee-trust entered into an agreement for sale of land during the year under appeal and also received advance of Rs. 22 lacs which came to be invested in duly approved investments being fixed deposits in nationalised banks and post offices but this fact does not tantamount to the transfer of property as contemplated in s. 2(47) of the Act. A perusal of the agreement for sale reveals that since the land under consideration belonged to a charitable trust necessary prior permission of the office of the Charity Commissioner was to be obtained and the agreement was to be implemented subject to this. Further the necessary condition was that prior approval of the office of Collector of Junagadh was also to be obtained and the physical possession of the land was to be handed over by the assessee to the purchasers only upon execution of the final sale deed. It is a matter of record that the transfer effectively took place only at the time of final execution of the sale deed when the physical possession of the respective plots was handed over to the final purchasers. In fact, as pointed out above, the assessee-trust was not in a position to hand over the possession that all till 31st March, 1992 since the final permission from the office of Collector of Junagadh was received only in April, 1992. Thus, the transfer took place not in the assessment year under appeal i.e. asst. yr. 1992-93 but in the subsequent assessment year i.e. 1993-94 and the entire capital gains arising out of the transfer were placed before the AO but the same were not subjected to tax as these were invested in nationalised banks and post offices. This fact is clear from the order of the AO relating to asst yr. 1993-94 placed at p. 97 of the paper-book, where by he has also given exemption to the trust under ss. 11 and 12 of the Act.
6.1 As regards the contention of the AO that as per the definition of "transfer" in relation to capital assets under s. 2(47) which has become more wide w.e.f. 1st April, 1988 for the purpose of capital gains, we do not find any merit in it. Sec. 2(47) as amended by the Finance Act, 1987 introduced the following sub-cl. (v) within the inclusive definition of the term "transfer" :
"(V) Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part-performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1882)".
The Departmental Circular No. 495, dt. 22nd September, 1987 reproduced explains the legislative amendment and amply clarifies the legal position in relation to the extended meaning of the term "transfer". If along with the acceptance of same consideration under an agreement for sale, the vendor allows the possession of the property to be taken or retained by the purchaser; the transfer would be complete at that point of time but in a case, as in the present case, where mere advance under the agreement for sale was received, but no possession had been parted with during the year under appeal, there would be no liability to capital gains. Since there would be no transfer within the meaning of s. 2(47) of the Act. As pointed out above, in the case of the assessee, the transfer effectively took place at the time of final execution of the sale-deed when the physical possession of the respective plots were handed over to the final purchasers, after obtaining prior approval/permission from the Collector of Junagadh, in April, 1992 which falls in the asst. yr. 1993-94.
6.2 As regards the second issue i.e. whether the assessee is entitled to exemption under ss. 11 and 12 of the Act, we note that in the scheme relating to taxation of trusts under ss. 11 to 13 of the IT Act, the provisions in relation to forfeiture of exemption in the case of charitable trust are described under s. 13 of the Act. It is pertinent to note that it is not the case of the learned AO that any of the provisions of s. 13 are attracted or liable to be invoked in the case of the assessee-trust. Further, the learned AO has not disputed the genuineness in regard to the registration of the trust, by both the Charity Commissioner and also the CIT under s. 12A of the IT Act. The registration has been given by the CIT under s. 12A and it is not understood as to how the ITO acting on his own can forfeit the same when the assessee has not contravened the provisions of s. 13 of the Act.
As regards the AO's charge that the trust filed its return of income late in contravention of the provisions of s. 139(4A) and hence it is not entitled to exemption under s. 11, we note that it is nowhere prescribed under the IT Act that merely because a trust files its return of income late in contravention of the provisions of s. 139(4A), it will lose exemption under s. 11. The only recourse the AO can have in such a case is to invoke the provisions of s. 272A(2)(e) initiating penalty proceedings for late submission of the return. Therefore, the ground of late filing of appeal return cannot support the AO's observation of forfeiting exemption under s. 11 of the Act.
6.3 As regards the AO's observation that the assessee-trust did not carry out any charitable activities until 1st February, 1992, as pointed out under the facts of the case supra, the assessee-trust did not have liquid resources to carry on activities for charitable purposes and it was for this reason, that the trust decided to liquidate its asset being land so as to raise liquid resources which would enable it in carrying out of such activities. From the progress reports filed for the subsequent years it is noted that the assessee-trust did carry out its charitable activities with the funds which became available with the assessee-trust on sale of land. It is also pertinent to note that in the preceding years the assessee-trust was treated as a charitable trust and in the subsequent years also for which assessments have been made under s. 143(3) the AO has treated the trust as charitable qualifying exemption under ss. 11 and 12 of the Act. We accordingly hold that there is no justification on the part of the AO for forfeiting the exemption under s. 11 and 12 on this ground. Yet another reasons given by the AO for forfeiting the exemption is that the notice in Form No. 10 was not filed before the prescribed time under s. 139(1) for furnishing the return of income. As pointed out supra, more than 75 per cent of the income was already spent during the year and hence there was no real necessity for the trust to file notice in Form No. 10. Accordingly we agree with the contention of the learned counsel for the assessee that such notice was only out of abundant caution and the same was only of academic importance on the facts of the present case. In any case this cannot be a ground for forfeiting exemption, more so on the facts of the present case. This being the position, the question whether the (sic) of the trust was validly available on record or not is once again of academic importance.
6.4 The CIT(A) while upholding the finding of the AO placed reliance on the judgment of the Madras High Court in the case of CIT vs. Ootacamund Gymkhana Club (supra). In our view, the reliance placed by the CIT(A) is misplaced. In this case the club came into existence with the object : (1) to provide a club for the accommodation of members and their friends and the encouragement and management of sports and games and (2) to promote social intercourse amongst the members of the club and their friends and encourage and manage sports and games. Taking note of the above objects and the activities, the Hon'ble Madras High Court observed as follows :
"As organisation with the primary object of promoting social and physical well-being of persons to enable them to participate in sports and games has a charitable purpose especially where the object is not restricted to its members and there is no inhibition of participation by members of the public in such sports and games. Just as development an industry leads to economic prosperity, similarly participation in games leads to the physical well-being which is a sine qua non of a healthy society.
The dominant object in the instant case being charitable in nature the assessee was entitled to exemption from taxation under s. 4(3)(i) of the Indian IT Act, 1922."
The above ruling of the Madras High Court favours the assessee and not the Revenue as wrongly held by the CIT(A).
The assessee before us is a genuine charitable trust with the laudable objects of promoting Education & ancient language of this country viz. Sanskrit and other objects as detailed in para-2 above. We are accordingly unable to agree with the findings of the CIT(A) which are not based on correct appreciation of law.
7. In the light of above discussion, we reverse the findings of the authorities below and hold that the assessee Trust is a genuine charitable Trust; entitled to exemption under ss. 11 and 12 of the Act and further it is not liable to pay tax on capital gains during the year under appeal.
8. In the result, the appeal is allowed.