Trustees cannot receive payments for relinquishing positions without court permission or beneficiary consent

Kerala HC held that amounts received by trustees for relinquishing their trusteeship positions cannot be treated as capital receipts under the Income Tax Act. The court found trustees lacked authority to relinquish positions for consideration without court permission or beneficiary consent per trust deed provisions. Such consideration must be assessed as individual income under appropriate heads, not capital gains. The court set aside the Tribunal's contrary finding and remanded for fresh assessment. However, the court upheld findings regarding construction payments and donations made to trusts rather than individual trustees.

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Issues Involved:

1. Whether the trustees of a public charitable trust have a right to trusteeship and if they need to be compensated for relinquishing such rightRs.
2. Whether the trustees are entitled to benefits other than remuneration for services rendered by themRs.
3. Whether the ITAT was right in deleting the addition of the amount received by the trustees as 'income from other sources'Rs.
4. Whether agreements signed subsequent to search have any sanctityRs.
5. Whether mere deduction of tax at source on an amount paid is sufficient to establish that alleged service is renderedRs.
6. Whether payment made to erstwhile trustees without services actually rendered by them will fall outside the ambit of Sec.13Rs.
7. Whether mere book addition in the asset side of the balance sheet is sufficient to prove that asset has actually come into beingRs.

Summary of Judgment:

Re: I.T.A. Nos. 46/2020, 47/2020, 48/2020, 49/2020, 51/2020:

1. Trusteeship Rights and Compensation:
The Tribunal found that the consideration received by the trustees for relinquishing their trusteeship was a capital receipt and not taxable as 'income from other sources.' The Tribunal reasoned that the right of trusteeship is a capital asset, and since the cost of acquisition is nil, the gain on relinquishment is not taxable.

2. Entitlement to Benefits:
The Tribunal held that the trustees' right to trusteeship is a capital asset, and the consideration received for relinquishing it is a capital receipt. This was based on the Supreme Court's decision in CIT v. B.C. Srinivasa Shetty, which held that if the cost of acquisition of a capital asset cannot be determined, the transfer of such an asset would not attract capital gains tax.

3. Deletion of Addition by ITAT:
The Tribunal found that the amounts received by the trustees were not taxable as 'income from other sources' but as a capital receipt. The Tribunal's reasoning was based on the fact that the right to trusteeship is a capital asset, and the consideration received for relinquishing it is a capital receipt.

4. Agreements Signed Subsequent to Search:
The Tribunal found that the agreements signed subsequent to the search were valid and had sanctity. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

5. Mere Deduction of Tax at Source:
The Tribunal held that the deduction of tax at source on an amount paid is sufficient to establish that the alleged service is rendered. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

6. Payment Made Without Services Rendered:
The Tribunal found that the payments made to the erstwhile trustees were for the construction of buildings and not for relinquishment of trusteeship. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

7. Book Addition in Asset Side of Balance Sheet:
The Tribunal found that the book addition in the asset side of the balance sheet was sufficient to prove that the asset had actually come into being. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

Re: I.T.A. No. 6/2021:

1. Sanctity of Agreements Signed Subsequent to Search:
The Tribunal found that the agreements signed subsequent to the search were valid and had sanctity. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

2. Mere Deduction of Tax at Source:
The Tribunal held that the deduction of tax at source on an amount paid is sufficient to establish that the alleged service is rendered. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

3. Payment Made Without Services Rendered:
The Tribunal found that the payments made to the erstwhile trustees were for the construction of buildings and not for relinquishment of trusteeship. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

4. Book Addition in Asset Side of Balance Sheet:
The Tribunal found that the book addition in the asset side of the balance sheet was sufficient to prove that the asset had actually come into being. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

Re: I.T.A. Nos. 54/2020, 55/2020, 56/2020, 68/2020:

1. Deletion of Addition of Rs. 8 Crores Each:
The Tribunal found that the amount of Rs. 8 crores received as donation by St. Thomas Education Trust could not be considered as income in the hands of the trustees. The Tribunal upheld the CIT (A)'s view that the payments in question were made to the trust and not to the trustees in their individual names.

Conclusion:

1. I.T.A. Nos. 54/2020, 55/2020, 56/2020, 68/2020 and 6/2021 are dismissed, answering the substantial questions of law against the revenue and in favor of the assessee.
2. I.T.A. Nos. 46/2020, 48/2020, 49/2020, and 51/2020 are partly allowed by way of remand. The substantial questions of law, other than those remanded, are answered against the revenue and in favor of the assessee.
3. I.T.A. No. 47/2020 is allowed by way of remand on the specified questions.

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