Liberal interpretation of investment by Trust

As many of us would be aware that a Trust’s income as per S. 11 is exempt if it obtains S. 12A exemption certificate. However this does not cover capital gain and Trust is subject to taxation on the same. Of course a Trust like anybody else can take benefit of the exemptions available under the Act.

In a recent case, a Trust had a capital gain on sale of an immovable property. To mitigate the same it invested in REC Bonds (Relief under S. 54EC). However the investment in the bonds was in the name of the Trustees and not the Trust. ITO as well as Commissioner disallowed this investment and charged tax on the full capital gain amount. However Ahmedabad Tribunal decided in the favour of the Trust, stating that more liberal meaning has to be taken as long as funds had been transferred from the bank account of the Trust, even if investment was in the name of the Trustees.

This decision could be useful for such trusts / societies who make such mistakes for one reason or other.

However one needs to be careful while liberally using this judgment, since the tax authorities could use S. 13 (2) for disallowing such exemption.

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