By K. B. Bhujle
Advocate
CIT vs. Sri Magunta Raghava Reddy
Charitable Trust; 398 ITR 663 (Mad):
The assessee was a trust running educational
institutions. It purchased lands to an extent of 71.89 acres in the year
1986-87 for the purpose of setting up a medical college and old age home. The
assessee could not obtain the necessary permissions from the competent
authorities and accordingly the said land could not be utilised for the said
purpose. Therefore, the assessee divided the land into plots and sold the plots
and received profits in different years. The profit was utilised for the
charitable purposes. For the A. Ys. 2010-11 and 2011-12, the Assessing Officer
brought to tax, a sum under the head, ”income from business”. The Tribunal held
that the assessee was entitled to exemption u/s. 11.
On appeal by the Revenue, the Madras High
Court upheld the decision of the Tribunal and held as under:
“i) Merely because the lands
were sold from 1994 onwards, and fetched a higher value, it could not be said
that it was only for profit motive. When there was no prohibition in the
Income-tax Act, 1961, restraining unutilised land to be sold in smaller extent,
such activity of the assessee, could not be construed as predominant business
activity.
ii) The material on record
further disclosed that the sale proceeds of the lands were utilised only for
charitable purposes and not diverted. Even going by the subsequent conduct of
the assessee in utilizing the profits earned, only for charitable purposes, it
was evident that the intention of the assessee was not to engage continuously
in business or trade or commerce. The assessee was entitled to exemption u/s.
11.”
