2018 (6) TMI 1376

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....g of Section 13(1) (c) of the Income Tax Act, 1961 (in short "the Act'') and assessee was eligible for claiming exemption u/s.11 of the Act. 2. Facts apropos are that assessee a charitable trust registered u/s.12A (a) of the Act, had filed its return for the impugned assessment year declaring "Nil'' income after claiming exemption u/s. 11 of the Act. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had paid a sum of Rs. 40,78,668/- to one M/s. Amali Builders Private Limited towards consultancy services. Ld. Assessing Officer noted that one Shri. Cletus Babu and one Smt. J.X. Amali who were directors in M/s. Amali Builders Private Limited were also trustees of the assessee trust. As per ....

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..... However, ld. Assessing Officer was not impressed by the above reply. He held as under at para 7 of its order:- "The assessee's reply is considered. The services provided appear to be of very vague nature. The assessee has stated that the payments have been made on a monthly basis after making proper assessment in terms of the area of building constructed or maintained and quantum of man power provided .The details or the man power provided have not been furnished The basis or the working for fixation of services charges have not been provided. The details of repair work carried out by M/s, Amali Builders have not been furnished. The payments made during the year Rs. 40,78,668/- appear to be in excess of the services rendered.....

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....t cannot be doubted that Mls Amali Builders Private Limited was created only for the purpose of payment of service charges by the assessee. The Assessing Officer did not record any finding that the company did not render any services at all and according to him the service provided were very vague nature and in any case, he did not deny the fact that the services were rendered. Even if the appellant had entrusted the construction work to a building contractor, the trust has to pay profit which may vary from 8% to 10% and, therefore, the payment of services charges @ 8% on the construction cost of the appellant on month to month basis is reasonable having regard to the prevailing market conditions. In the circumstances, it cannot be said tha....

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....of the assessee's trust was applied in a manner which was directly beneficial to a concern in which the trustees were having substantial interest. Further, according to him, there was a clear finding by the ld. Assessing Officer that services provided by M/s. Amali Builders Private Limited were of vague nature and assessee could not give the basis how the services charged were calculated. As per the ld. Departmental Representative these was violation of Section 13 of the Act. According to him, Ld. Commissioner of Income Tax (Appeals) fell in error in holding that there was no such violation. Reliance was placed on the judgment of Hon'ble Kerala High Court in the case of Agappa Child Centre vs. CIT, (1997) 226 ITR 221 and decision of Delhi B....

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....(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Persons referred to in Subsection (3) of Section 13 are as under:- (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- (a) the author of the trust or the founder of the institution ; (b) any person who ha....

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....r partly by such person and partly by one or more of the other persons referred to in sub-section (3) ; (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent. of the profits of such concern. Apart from saying that two of the trustees were also directors of the M/s. Amali Builders Private Limited, ld. Assessing Officer has no where shown as to how the said concern satisfied requirement of Explanation 3 to Section 13(1) (9). Just because two trustees were directors would not mean that they were entitled to 20% of the profit or were havi....