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It is therefore submitted that sale of plots of land was not out of the property held under trust wholly for charitable activities nor was it treated as capital asset by the assessee. Kind attention is invited to the Balance Sheet wherein the Land for Sale has been shown separately and not as part of Fixed Assets.

For the reasons it is submitted that Section 11A is not applicable to the facts of the assessees case.

4. After considering the above explanation, for the assessment year 2010-11, the Assessing Officer found that the assessee has bought 71.89 acres of land and at the time of disposing of the said land, obtained necessary permission from the town planning authority to divide the land into small plots and sold the same, by entering into sale agreements, obtained sale consideration, registered the documents, etc. Though the assessee has purchased the said land at Rs.49/- per Sq. Yard., sold the same at Rs.5,500/- per Sq.Yard, by making bumber profits, during the previous year 2009-10. The above activity of the trust carrying on business activity, was with a profit motive. The above activity of the assessee is an organized activity of carrying on business with profit motive. The assessee has been engaging in this activity from the year 2004-05, with profit motive. Thus, the activity of the assessee is only a commercial activity, not falling under any of the charitable activities, as per the objects of the Trust. Further, the said activity does not fall under any of the limbs defined in Section 2(15) of the act, viz., relief to poor, education, medical relief and not even under the category, any other object of general public utility. So saying, for the assessment year 2010-11, the Assessing Officer passed an order on 31.03.2013 and brought to tax, a sum of Rs.1,62,76,519/-, under the head, income from business.

9. On the objections of the assessing officer that the land was laid out and sold as plots and profit was earned in a systematic manner over a period of time and that the activity constituted business activity, the appellate authority has referred to a Circular No.11 of 2008, dated 19.12.2008. Taking note of the observations of the assessing officer, recognising the character of the trust (charitable), the appellate authority held as follows:

If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity. In this case, the lands in question are no longer required by the trust and the trust was forced to sell the land by forming plots because there is no taker to purchase the land en-bloc. Hence, the trust had been selling them over a period of years and the profit earned out of it had been utilized towards the objects of the trust. The AO did not record any finding that the profits are diverted for non-charitable purpose/activity. As long as the trust carries out charitable purpose, the exemption cannot be denied to the trust. Therefore, I am of the considered view that the decision of the assessing officer cannot be countenanced.

25. In R.Ramaiah's case (cited supra), the intention of the assessee was clear that he wanted to make profits, by selling the land. Activity of the assessee therein was purely commercial. Whereas, in the case on hand, the objects of the assessee-trust are charitable and they are as follows:

(i) The principle object of the Assessee trust is to provide Medical relief for the needy, running of educational institution, supply of drinking water and other charitable activities. The assessee has been running educational institution in the backward areas of Prakasam and Nellore District of Andhra Pradesh in the form of Junior college in 14 places and degree colleges in 3 places in the name and style of M/s.MSR Junior Colleges.

37. What emerges from the reading of the provisions and the Circular is that a trust or institution, whose purpose is advancement of any other object of general public utility, and recognised as charitable, under the fourth limb of Section 2(15) of the Income-Tax Act, and predominantly engages in activities in the nature of trade, commerce or business, should not be permitted to escape from taxability, with the mask, charitable. In the case on hand, the glaring omission on the part of the revenue is to consider, as to whether, sale of lands was necessitated? Whether it was incidental towards attainment of the objectives of the trust?, and more particularly, when the income was wholly utilised only for achieving the objectives of charitable purpose of the trust. Therefore, mere sale of an immovable property of the trust alone, cannot be the sole factor, to arrive at a conclusion that the income earned should be brought under the head, business income. In the case of trust or institution, whose predominant activity is not business, incidental activity of sales, carried out, in furtherance of and to achieve the main objectives of the trust or institution, should not be construed as business activity, solely with an intention to earn profit, and consequently, to bring the income, under the head, business income.