2015 (3) TMI 966 - AT - Income Tax

Trust Tribunal Upholds Exemption for Trust Payments under Income-tax Act

The Tribunal dismissed the Revenue's appeal and upheld the CIT(Appeals) decision to grant exemption under Sections 11 and 12 of the Income-tax Act, 1961 ... Exemption under Sections 11 and 12 for charitable trusts - disallowance under Section 13(1)(c) for payments benefiting trustees or related concerns - scope of the expression 'concern' in Section 13(3) and its application to another charitable trust - fiduciary nature of trustees' interest as distinct from ownershipDisallowance under Section 13(1)(c) for payments benefiting trustees or related concerns - scope of the expression 'concern' in Section 13(3) and its application to another charitable trust - exemption under Sections 11 and 12 for charitable trusts - Whether payments made by the assessee to another registered charitable trust in which some trustees are common attract Section 13(1)(c) and disentitle the assessee to exemption under Sections 11 and 12. - HELD THAT: - The Tribunal found that the recipient, M/s Sivaraja Ramalinga Trust, was a registered charitable trust and that the presence of some common trustees does not convert the recipient into a 'concern' within the mischief of clause (e) of sub-section (3) of Section 13. Trustees hold trust property in a fiduciary capacity for beneficiaries and not as owners; their commonorship does not demonstrate that any part of income was used for the benefit of the trustees or persons specified in Section 13(3). Consequently, invocation of Section 13(1)(c) was unwarranted and the assessee remained entitled to exemption under Sections 11 and 12. The Tribunal upheld the CIT(Appeals) reliance on the coordinate-bench decision in Jeppiaar Educational Trust and declined to disturb that conclusion. [Paras 6]Payments to the other registered charitable trust do not attract Section 13(1)(c); the assessee is entitled to exemption under Sections 11 and 12.Final Conclusion: Revenue's appeal is dismissed; the assessee-Trust remains entitled to exemption under Sections 11 and 12 as payments to the other registered charitable trust do not fall within Section 13(1)(c). Issues:Revenue's grievance regarding the CIT(Appeals) allowing exemption under Section 11 of the Income-tax Act, 1961 to the assessee for payments made to M/s Sivaraja Ramalinga Trust, and the contention that the decision of a co-ordinate Bench of the Tribunal in a similar case has not been accepted.Analysis:Issue 1: Exemption under Section 11 of the ActThe Revenue appealed against the CIT(Appeals) decision to grant exemption under Section 11 of the Act to the assessee for payments made to M/s Sivaraja Ramalinga Trust. The Revenue argued that since some trustees were common between the assessee and the trust, the assessee was hit by Section 13(1)(c) read with Section 13(3) of the Act. The Assessing Officer treated the assessee-Trust as an AOP and denied the exemption. However, the CIT(Appeals) held that the payments made to the trust did not violate Section 13(1) of the Act as the term 'concern' in Section 13(3) did not include another charitable Trust. The CIT(Appeals) relied on a previous decision of the Tribunal in a similar case and directed the A.O. to grant the exemption.Issue 2: Interpretation of Section 13(3) of the ActThe Revenue contended that any concern in which a trustee with substantial interest is involved falls under the purview of Section 13(1)(c) of the Act. They argued that since the trustees of the assessee-Trust had substantial interest in the trust to which the payments were made, they directly or indirectly derived benefits, making the exemption invalid. However, the Tribunal held that trustees hold the trust property in a fiduciary capacity for the beneficiaries and not for themselves. Common trustees between two trusts do not automatically make them related concerns under Section 13(3) of the Act. The Tribunal agreed with the CIT(Appeals) and upheld the grant of exemption under Sections 11 and 12 of the Act to the assessee.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(Appeals) decision to grant exemption under Sections 11 and 12 of the Income-tax Act, 1961 to the assessee for the payments made to M/s Sivaraja Ramalinga Trust. The Tribunal emphasized that common trustees between two trusts do not establish a relationship that would trigger the provisions of Section 13(1)(c) of the Act. The decision was based on the fiduciary role of trustees and the beneficial interest of the beneficiaries in the trust property.