Law:

Section:

Section 11(1A) of the Income-tax Act, 1961 - Charitable or religious trust - Exemp- tion of income from property held under - Assessee, a public charitable trust, received donation of 60 ordinary shares of company K subject to encumbrance of Es. 80,500 -Assessee disposed of its 200 ordinary shares of another company C and discharged debt of Bs. 80,500 on snares of company K and obtained delivery of said 60 shares of K - Whether by paying impugned sum of Rs. 80,500 out of net consideration received on sale of 200 ordinary shares of company C assessee-trust had merely discharged its obligation to pay its creditor and had not thereby acquired a capital asset, that is, shares of company K, so as to be entitled to exemption under section 11(1A) - Held, on facts, yes Facts The assessee was a public charitable trust. One L donated 60 ordinary shares of company K to the assessee subject to the encumbrance of a debt of Rs. 80;500. These shares were pledged with the creditor. The assessee disposed of its 200 ordinary shares of company C for a certain consideration and, from the price so realised, discharged the debt of Rs. 80,500 and obtained the delivery of those 60 shares. The assessee claimed that since the capital gains realised on the sale of 200 ordinary shares of company C was utilised to redeem the 60 ordinary shares of company K, the said capital gain could not be brought to tax in view of section 11(1A). The ITO rejected the assessee's claim but the Tribunal held that the assessee was entitled to exemption under section 11(1A) as the assessee had acquired another capital asset by utilising the price of shares of company C inasmuch as it acquired the full bundle of ownership rights over those 60 shares of company K. On reference: Held Under a pledge, the possession of the thing is transferred to the creditor but the full ownership in the thing remains with the debtor notwithstanding the encumbrance. A pledge is merely an encumbrance created in favour of the creditor 'over' property which remains vested in the debtor. Once the debt is paid-off, the shadow cast by the debt on the property disappears and the encumbrance ceases to exist. Unlike in the case of a…

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