COMMISSIONER OF INCOME TAX Vs. AMBALAL SARABHAI TRUST NO 3
LAWS(GJH)-1988-4-18
HIGH COURT OF GUJARAT
Decided on April 19,1988

COMMISSIONER OF INCOME TAX Appellant
VERSUS
Ambalal Sarabhai Trust No 3 Respondents


Cited Judgements :-

Commissioner of Income tax VS. Hindusthan Welfare Trust [LAWS(CAL)-1991-9-4] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. AUROBINDO MEMORIAL FUND SOCIETY [LAWS(MAD)-1999-3-73] [REFERRED TO]


JUDGEMENT

S.B.MAJMUDAR,J. - (1.)THREE questions have been referred for our opinion in this reference. They read as under :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the provisions of section 11(1A) of the Income -tax Act, 1961, are applicable and consequently the capital gain resulting from sale of shares is exempt ? 2. Whether the finding of the Appellate Tribunal that since the assessee had invested part of the consideration on sale of shares in question in bank and the balance was kept with the purchaser in fixed deposit, the assessee could be said to have utilised the whole sale proceeds for acquiring another capital asset is correct in law ? 3. Whether, on the facts and in the circumstances of the case, the assessee could be said to have in law utilised the whole sale proceeds for acquiring another capital asset so as to exempt it from the charge of capital gains tax resulting on sale of shares in question ? '.

(2.)THE reference has been made at the instance of the Revenue. In order to appreciate the contours of the controversy reflected by these questions, it would be necessary to note a few introductory facts at the outset. The assessee trust is a charitable trust. The year of assessment is 1974 -75. During the relevant year, the assessee trust sold three shares of Karamchand Premchand Private Limited and 377 shares of Calico Mills and realised a net consideration of Rs. 1,75,807. Some of the above shares had been received by way of donation whereas some of the shares were received by bonus accretion to the above mentioned shares. The Income -tax Officer sought to compute the capital gains on the above sales of shares. The assessee trust claimed before him that the amounts received on account of the sale of the shares had been in fact kept as a deposit -bearing interest with the result that the provisions of section 11(1A) were attracted. According to the assessee trust, the consideration received on the sale of shares was utilised for the acquisition of the fixed deposits so far as 90% of the sale consideration was concerned and 10% of the sale consideration was utilised by investing the same in a bank. So far as 90% of the sale consideration was concerned, the same was allowed to be kept with the purchaser as fixed deposit on interest. The Income -tax Officer took the view that this 90% of the sale consideration can be said to be the unpaid purchase price for the payment of which the purchasers were given instalments on interest and consequently it can not be said that 90% of the sale consideration was utilised by the assessee trust for acquiring another capital asset. Hence, the benefit of section 11(1A), according to the Income -tax Officer, was not available to the trust.
On appeal, the Commissioner (Appeals) held to the contrary. He took the view that the provisions of section 11(1A) are applicable to the facts of the case and, therefore, capital gains tax was not attracted on the sale of the shares. The Revenue carried the matter in appeal before the Income -tax Appellate Tribunal. Having failed in the appeal to convince the Tribunal about the stand taken by the Revenue, the latter got the aforesaid three questions referred for our opinion.

(3.)NOW , before we deal with the controversy centering round the referred questions, it will be necessary to note a few admitted facts at this stage. The assessee trust is a charitable trust registered under the provisions of the Bombay Public Trusts Act. During the relevant year, it sold three shares of Karamchand Premchand Private Limited to the estate of late Ambalal Sarabhai for Rs. 8,796 of which Rs. 880 only were received in cash and the balance of Rs. 7,916 was held as deposit with the purchaser to be repaid over a period. Likewise, 377 shares of Calico Mills were sold to Karamchand Premchand Private Limited for a sum of Rs. 1,67,011 against which only Rs. 16,701, was received in cash and the balance was kept with the purchaser as deposit. The actual money thus realised on the above transactions comes to Rs. 17,581. It was kept in fixed deposit with the Bank of India. So far as 90% of the sale price is concerned, the assessee passed a resolution with regard to the above investment which reads as under :
'Resolved that the sale of investments held by the trust in the following companies, viz. : ________________________________________________________________________Name of the company No. of share Rate Total Name of purchaser________________________________________________________________________The A' bad Mfg. and Ord. 377 443 1,67,011 Karamchand PremchandCalico Ptg. Co. Ltd. Pvt. Ltd.Karamchand Ord. 3 2932 8,796 Estate of AmbalalPremchand Pvt. Ltd. Sarabhai.__________Total 1,75,807 - - - - - - - - - - Upon the following terms and conditions be and is hereby approved : Price - In the case of Calico Mills shares, the rate of Rs. 443 per share is the closing rate on Saturday 23rd June, 1973 (24th being Sunday), and in the case of shares of other companies, the rate is fixed on the basis of the value computed as per the Wealth -tax Rules. Mode of payment : 10% of the total price is received on delivery of share certificate on June 26, 1973. Balance will be kept by the purchasers as deposit carrying interest at 9 and half per cent per annum for the period as under : 1/9th, i.e., Rs. 17,881, for the period of one year ending on June 30, 1974. 2/9ths, i.e., Rs. 35, 161, for the period o f one year ending on June 30, 1975. 2/9ths, i.e., Rs. 35,161, for the period of one year ending on June. 30, 1976. 2/9ths, i.e., Rs. 35,161, for the period of one year ending on June 30, 1977. 2/9ths, i.e., Rs. 35,161, for the period of one year ending on June 30, 1978. Total Rs. 1,58,226. Further resolved that the Secretary be and is hereby authorised to apply to the Charity Commissioner to get his approval required under section 35 of the Bombay Public Trusts Act, 1950'.

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