George Cheriyan, Vice-President - (1.) THIS appeal is by the assessee, a trust, assessed in the status of an "association of persons". The appeal relates to the assessment year 1981-82. The accounting period is the period 1-4-1980 to 31-3-1981. In the accounting period, the assessee-trust sold the shares of about 14 companies. The total price realised came to Rs. 63,52,565. The cost of these shares was Rs. 23,25,466. The difference which was the capital gain was Rs. 40,27,099. The assessee claimed that the aforesaid net consideration arising out of the sale of shares should be deemed to have been applied for charitable purposes since the assessee had acquired "another capital asset" within the meaning of the said term as occurring in Section 11(1A) of the Income-tax Act, 1961.
(2.) The assessee had given particulars of the utilisation of the net consideration of Rs. 63.52 lakhs which have been reproduced in the assessment order and are as under : Details of re-investment of Sale Proceeds of Rs. 63.52 lakhs : JUDGEMENT_6695_TLIT0_19880.htm The ITO, in submitting his draft assessment order dated 22-2-1984, had stated that the sale proceeds of the shares were kept in scheduled banks for a short period (less than six months) and the said money was ultimately given as loans to the following parties:- JUDGEMENT_6695_TLIT0_19881.htm According to the ITO, the loans advanced by the assessee could not be considered as utilisation of sale proceeds of assets for acquiring "another capital asset" within the meaning of Section 11(1A) of the Income-tax Act, 1961 and as such, the ITO held the capital gain was liable to be included in the total income. He, therefore, proposed addition of the amount of Rs. 40,27,099. The assessee submitted certain objections to the ITO dated March 2, 1984. The assessee stated that Section 13(1)(d) of the Income-tax Act, as it stood at the relevant time, prohibited investment of trust funds in equity or preference shares and accordingly the Trust sold the equity and preference shares held by it and the investments were made of the proceeds thereof in the manner prescribed under Section 13(1)(d). Several alternative modes of investment were available which included loans and deposits. Since the surplus was invested in the prescribed manner, the assessee contended that the trust was entitled to exemption under Section 11(1A).
(3.) THE IAC gave his direction under Section 144B(4) on 24-9-1984. After setting out the background, to which we have adverted, the IAC referred to the argument of the assessee that the expression "capital asset" as defined in Section 2(14) of the Act included property of any kind held by an assessee and went on to hold that Section 11(1A) was not dealing with the expression "capital asset" in isolation but with the expression "the net consideration is utilised for acquiring another capital asset". THE IAC considered that adequate emphasis had to be placed on the words "utilised" and "for acquiring another capital asset". THE IAC was of the view that when the net consideration was advanced to third parties, it could not be considered that the same was "utilised for acquiring another capital asset". In that view, the IAC held that the utilisation of the sale proceeds would not satisfy the requirements of "acquiring another capital asset" and hence the benefit under Section 11(1A) could not be availed of by the assessee.;