TaxTMI 
TaxTMI 
2011 (4) TMI 1494
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....f '7,63,47,401/-. The return was processed u/s 143(1) on 14.2.2006. Subsequently, regular assessment was made on 24.12.2007. 3. The trust was created by a deed dated 28.5.1997 by Shri M.R.Sarangapani, S/o Shri M.A.Ramanandam, his wife Smt.S.Shaalini, son, Shri Harshavardhan and daughter Smt. Vandhana being its trustees. The assessee has been running the following institutions: i) Merit Swiss Asian School of Hotel Management(a residential) school, conducting Hotel Management Courses at Ooty ii) Merit International Institute of Technology(awarding Diploma courses) at Ooty iii) Alagappa University Study Centre (Distance Education Programme) at Ooty. 4. For running the above institutions, the trust had taken and occupied the premises owned by M/s Merit Resorts Pvt. Ltd, Chennai, M/s Nilgiris Enterprises, Bangalore and M/s Prince Palace, Ooty, on lease. Lease agreements were executed with the above concerns. For the purpose, the trust had paid rental advances to M/s Merit Resorts Pvt. Ltd(MRPL in short) for Merit International Institute of Technology premises, Dodabettah, Ooty. It also paid lease rentals and lease rental advances to M/s Nilgiris Enterpri....
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....y any interest instead a suitable reduction in lease rentals will be offered by MRPL on a long term duration. 7. In case of vacation of premises by MIEF at its discretion, the MRPL shall refund the lease rental advance without any interest. 8. MRPL hereby confirms having received advance lease rentals of ' 25,74,748/- from MIEF through Merit Inns Limited, Chennai upto 31.3.1998. 9. The advance for lease rental accommodation presently agreed as above shall be paid by MIEF from time to time as and when demanded by the MRPL and after satisfying themselves about the progress of construction of the Hostel. 12. MIEF shall use the Schedule mentioned property for Hostel accommodation to its students of Hotel Management Academy activities and MIEF shall not convert the said property into any other use. 18. MIEF and MRPL shall enter into comprehensive lease deed on completion of Hostel Accommodation by the MRPL." 6. The trustees of assessee-trust are also the Directors of M/s MRPL. MRPL has constructed accommodation in Ooty out of the funds received from the assessee-trust in which the trust is running its Hotel Management Academy. The assessee....
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....R 697 Hon'ble Supreme Court is not applicable. 8. The fair market rent was got estimated at '3,86,250/- per month. The Assessing Officer came to know during assessment proceedings that the company had obtained loan from Canara Bank, Teynampet Branch, Chennai, by mortgaging this property. The property was later sold by Canara Bank on account of default of loan taken allegedly by misusing the name of the company and trust on the force of forged documents and financial statements. Smt Shaalini, Director of the company filed a case before the Debt Recovery Tribunal for setting aside the sale. A letter was received by the assessee on 17.12.2007 calling for its reply. The assessee filed its reply on 20.12.2007 and claimed as follows: (i) Shri S.Harshavardhan and others namely Nithya Reddy and Nithesh Ranka alleged to have furnished forged documents, forged financial statements in the name of the company M/s Merit Resorts Pvt. Ltd to the captioned bank as if the trust (i.e) Merit international Education Foundation is paying huge rentals to the company and obtained credit facilities and later defaulted. The name of the company and the trust being surreptitiously used and th....
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.... The Commissioner of Income Tax (Appeals) erred in holding that the Appellant has violated the provisions of Sec.13 of the Income Tax act and is not entitled to the benefit of Sec.11. 2. The Commissioner of Income Tax (Appeals) is wrong in holding that Sec.11 (5) has been violated. 3. The Commissioner of Income tax(Appeals) erred in holding that the transaction of lease is not genuine. 4. The Commissioner of Income tax (Appeals) ought to have deleted the interest u/s 234 A and 234 B. 5. The conclusion of the Commissioner of Income tax (Appeals) that the Appellant is not eligible for the exemption u/s 11 is not just, proper or tenable either on facts or in law. " 10. We have considered the rival submissions in the light of the material available on record including the paper books filed by the trust. We have found it for a fact that M/s Merit International Educational Foundation was registered as a Public Charitable Trust u/s 12AA of the Act vide certificate dated 28.7.1998 issued by the Director of Income-tax(E), Chennai. The trust was created by a deed dated 28.5.1997 as stated in the earlier part of this order. The main object of the trust i....
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.... occupation by the trust failing which the trust had the option to register this property in its name. As per this agreement, the original title deeds of the said property had to be deposited with the trust, which was also in possession of the property, until the rental advances were repaid. From the lease rental advances received from the trust over a period of years, the company had put up construction and provided the accommodation in Ooty for the academy to carry on its activities. The total lease rental advances outstanding as on 31.3.2005 were ' 9,67,97,188/-. In this property, Merit International Institute of Technology was being run. It is also an undisputed fact that neither the trust had paid any lease rental nor the company had received any lease rent till date. The trust wants these lease rental advances paid to the company to be treated as application of its funds as it had the right to use the property and was also in possession of the property in its entirety. The lease rental advances amounts were to be treated as income in the year of their refunds. It is also an undisputed fact that the company had not received nor derived any benefit from the trust and the trust ....
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....R placed reliance on the decision of Hon'ble Supreme Court rendered in the case of H.E.H Nizam's Religious Endowment Trust vs CIT, 59 ITR 582, in which it has been held that the words "applied" and "accumulated" therefore, meant "applied or finally set apart". It has been held that "applied" means that the income is actually applied for the said purposes in the taxable territories for the purposes for which the trust had been created. In the light of the above decision of Apex Court it was argued that this case directly applies to the facts of the given case. Reliance was also placed on the decision of the Hon'ble Kerala High Court rendered in the case of CIT vs St. George Forana Church, 170 ITR 62, wherein it has been held that the word "applied" in the context means that actually applied or actually spent. Such application may be by way of adding to the corpus of the fund and not merely in the form of revenue expenditure for implementing the purpose of the trust. Further reliance was placed on the decision of Hon'ble Delhi High Court rendered in the case of Director of Income-tax(Exemption) vs Alarippu, 244 ITR 358. In this case, it has been held that in order to cons....