TaxTMI 
TaxTMI 
1991 (2) TMI 181
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....ol of Society which actually was running a school. 3. The assessing officer's objections are that, (a) M/s. Atul Trust was a family trust created for the benefit of the children of Mr. Chaidur Rahman, Mr. Abdul Qadir and Mr. Nool Alam ; (b) the assessee trust was created on 21-1-1983 vide a trust deed by Mr. Abdul Qadir with the aim and objects of advancement, promotion of education and all other allied charitable objects as are defined under the I.T. Act ; (c) the Cambridge School was being run by the Trustees of Atul Trust directly through their relations who are nominated to the management of the school ; (d) the appellant trust was left with a very meagre amount after the advance of the rent deposit of Rs. 2,60,000 for carrying on of the objects of the Trust ; (e) the transaction was colourable because the funds of the appellant trust was made available to the private family trust, the enjoyment of which was with the beneficiaries ; and (f) applying section 13(3) of the Act, the appellant trust was denied the exemption under section 11. 4. In appeal before Dy. CIT(A), the appellant had placed his reliance on the recognition and registration was granted by the Commissioner....
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....arladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.), at page 708. He further contended that, Atul Trust had a large property which was let to several tenants. He referred to the particulars of the tenants placed at page 14 of the paper book. He submitted with reference to this detail, tenants with much smaller areas had placed a higher deposit and the rental was also high, while the appellant trust with large area had given a very lower deposit and the rental was also quite low as per the present standards of the rent of premises. He therefore strongly contended that, the allegation of the revenue that, the provision of deposit was diversion of the funds of the trust to the beneficiaries of the private trust is clearly wrong, when the fact of deposit being too low, combined with the low rental is considered in its true light. He therefore pleaded that, the transaction being one for the furtherance of the objects of the trust, the trust should be granted exemption under section 11 of the Act. 7. The rival submissions and the various materials that had been placed on record have been duly taken note of and considered for arriving at the conclusions on the issue in this appea....
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.... than that rate. In support of this contention, the list of tenants, the rental charged, the deposit taken from various tenants were referred to. 7.4 For coming to the conclusion in the present issue, it had become essential to examine the provisions of section 13 of the Act, for ascertaining, whether, there is any restriction wholly or partly for having any kind of dealing similar to the one in the present case. Does the section prohibit or prescribe a total ban of any transaction by a charitable trust with the family members of that trust or concerns in which the trustees are partners, directors, proprietors etc. ? 7.5 Section 13(1) prescribes general conditions under which, the charitable institutions, income shall not be excluded from the total income of the trust as provided under sections 11 and 12 of the Act. The relevant sub-clause with which we are presently confined to is contained (a) which states "any part of the income from the property held under trust for charitable purposes, which does not enure for the benefit of the public". The other sub-clause is (d) of section 13 which states that, "in case any income of the charitable trust if for any period during the p....
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.... member of the family ; 4. Any trustee of the trust or manager of the institution ; 5. Any relative of any such author, founder, person, member, trustee or manager ; 6. Any concern in which such persons as in 1 to 5 above have substantial interest. 7.7 Sub-section (4) of section 13 provided that, the parameters and other provisions specified in section 13(1)(c) & (d) would not apply to a trust, if the aggregate of the amount of the funds of the trust invested in a concern where the persons have substantial interest in that concern does not exceed five per cent of the capital of that concern and the trust shall not be denied the exemption. 7.8 From the above sections it clearly emerges out that any charitable trust if the following circumstances are attracted to it, then it would lose the right of exemption of its income under section 11 of the Act. The circumstances are : (a) the income from the trust does not result in any benefit to the public ; (b) invested or kept in deposit in form and modes other than those specified in section 11(5)(c) persons who are either the settlor, or a substantial contributor or his relatives or his family members or concerns in which t....
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.... care, esp., money put in a bank, a bailment where one entrusts goods to another to be kept without recompense'. (Chambers Twentieth Century Dictionary 1972 Edition. at page 346). The above two terms therefore impliedly mean that, the funds of the trust should be invested or deposited with a view to make profit or income and if it is so invested or deposited, then it shall be done only in the modes specified in section 11(5) of the Act. The question that arises is that can it be said whether, the amount paid by way of security deposit for obtaining a lease is in the nature of an investment or deposit for making a profit or income. The answer is clearly in the negative, because, the intention is to obtain a lease of premises on rent for running of a school and the condition for the lease was that, the lessee shall keep in money by way of security deposit during the tenure of the lease, which deposit was adjustable towards the monthly rental. This security deposit therefore cannot be said to be an investment or deposit in the nature specified in the section 13(1)(d) of the Act. 7.10 The particular parameters specified in sub-section (2) of section 13 are examined now with referenc....
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....Trust 1st Floor 3,500 1,200.00 2,60,000.00 National Insurance Co. Ltd. G.F. 1,726 4,142.00 0.00 Out of the above parties, the assessee trust and Up Town Trading & Inv. Ltd. have paid deposits of greater amount than the others and at the same time, the assessee trust is occupying a larger area, and its rent as well as the deposit when compared to the Up Town Trading Inv. Ltd. company's rental and deposit is positively very low. In the case of the insurance company, which is a Government of India Enterprise, the area taken is less than half taken by the assessee trust, but the rental is more than three and half times the rent paid by the assessee trust, but there is no deposit taken. Taking the prevailing interest rate in 1983 of 12% on the deposits and adding the same to the rental from the assessee trust, the company with the Government company, the following emerge out. The assessee trust's rental would be (1200 x 12) Rs. 14,400 + Rs. 31,200 = Rs. 45,600. The company's rental would be (2000 x 12) Rs. 24,000 + Rs. 24,000 = Rs. 48,000. The Govt. company's rental is (4142 x 12) Rs. 49,704. On this basis, the rental plus the deposit does not appear to be excessive at all, as in ....
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....der section 11. The safeguard parameters having been defined under the Act, a strict interpretation is only necessary for coming to the conclusion as to the exact nature of the transactions between related parties, especially when one of them happens to be a charitable trust. The parameters as defined in section 13(2)(a) to (h) are quite exhaustive covering most possible situations. The Legislature found it perhaps too harsh to provide a bar of any transaction, had laid out conditions such as the consideration being adequate, adequate security, reasonable payment for services rendered, purchase and sale being at adequate consideration, there being no diversion of the income of the trust, no part of the funds allowed to remain invested in concerns etc. If the argument of the revenue had to be accepted as was intended, then, there might be a situation when there may be none who would be considerate to provide his property on rental, which rental is slightly lower than the market rent to any charitable trust, if his only interest was to make a profit from the transaction. The revenue had doubted the very purpose of floating of the assessee trust, since, the trust was left with very li....