TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 715
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....nal, Chennai (hereinafter called "the Tribunal") read as under:- "1. The Learned Commissioner of Income Tax (Appeals) has failed to consider that the property which was acquired by utilising the loan availed from the bank by the Appellant being Trust Property, is the property of the Appellant Trust and hence the question of any benefit arising to Trustee by virtue of Section 13(1)(c) and the consequent rejection of exemption under Section 11 does not arise. 2. The Learned Commissioner of Income Tax (Appeals) has failed to consider the factual submission made by the Appellant that "the land having been acquired totally out of funds of the trust, it is trust property only although registered in the name of the trustee". While the Learned CIT has considered the acquisition of land out of the trust funds, but has omitted to consider the submission made that the Property continues to be Trust Property. 3. The Learned Commissioner of Income Tax (Appeals) having failed to note that the declaration of Trust by the registered owner of the Property results in the property becoming a Trust Property and no further action is needed as the Trust is an obligation attached to the ownership o....
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....e submitted before the AO during the course of assessment proceedings that the assessee-trust availed a loan of Rs. 4 Crores from Union Bank of India, SME Branch, Guindy, Chennai and given the said amount towards 'Leasehold of the Land'. The AO observed from the documents furnished during the course of assessment proceedings that the assessee has obtained loan of Rs. 4 Crores from Union Bank of India in September, 2015 which was transferred to Smt. Mercy Latha, Managing Trustee of the assessee in the first week of October, 2015. The AO observed that Lease Deed was executed by Mrs. Mercy Latha, Managing Trustee in favour of the assessee on 22.12.2015 wherein the land situated at 52, Thaiyur A Village (Thaiyur B Village), Chenglepattu Taluk was given on lease for a period of three years to assessee-trust, free of rent. The AO observed that Smt. Mercy Latha, Managing Trustee, purchased the said property utilizing the funds transferred by assessee-trust. The AO observed that as on the date of transfer of funds by assessee-trust to Mrs. Mercy Latha, Managing Trustee, the Mrs. Mercy Latha was not having possession of the said immovable property . The AO observed that said immovable prop....
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....as been diverted and utilized by Smt. Mercy Latha, Managing Trustee for purchase of immovable property in her name, and hence it is clear infringement of Section 13(1)(c) read with Section 13(2) of the 1961 Act, thus the AO observed that the assessee has become ineligible for claiming exemption under Section 11 & 12 of the 1961 Act. The assessee on its part submitted before the AO that no benefit/advantage was derived by Managing Trustee from the said land as it did not yielded any income nor said immovable property is capable of yielding any income . The assessee in its reply submitted before the AO as under: ".....the land having been acquired totally out of the funds of the trust, it is trust property only although registered in the name of the trustee, It was formally leased out vide lease deed dated 22nd December, 2015 by the trustee to the trust free of any rent. You would find that this is more in the nature of a formality to process the Building Plan approval and reclasstfication of the land. "......in this connection, we wish to submit that the Trust Deed empowers the Trustees to purchase the land vide Clause 13 of the Trust Deed which is extracted herein below for th....
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.... the case of CIT v. Dawoodi Bohra Jamat reported in 364 ITR 31(SC) wherein exemption u/s 11 and 12 of the 1961 Act was denied to the asessee due to violation of Section 13(1)(c) of the Act. The assessee was assessed to tax by AO with status of AOP and assesee's income was brought to tax at Maximum Marginal Rate as per proviso to Sec.164(2) of the 1961 Act, vide assessment order dated 14.12.2018 passed by AO u/s 143(3) of the 1961 Act. 4. The assessee being aggrieved by an assessment order dated 14.12.2018 passed by AO u/s 143(3) of the 1961 Act filed first appeal before learned CIT(A) and made detailed contentions which are reproduced by Ld.CIT(A) in its appellate order 01st April 2019. The Ld.CIT(A) rejected contentions of the assessee , vide appellate order dated 01st April 2019, by holding as under: "5. I heard contentions of the AR of the Appellant and perused the grounds of appeal, assessment order, AR's submission and material available on record. My observations in respect of the grounds raised by the appellant are as follows: 6. Disallowance of exemption u/s 11 for violation u/s 13(l)(c): 6.1 The Assessee claimed Rs. 24,95,992/- towards interest paid on building ....
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....oses. During the year, assessee repaid part of the loan and in fact claimed Rs. 24,95,992/- towards interest paid on the loan. Hence the argument of the assessee that giving loan funds to the Managing Trustee does not attract section 13(1)(c) is dismissed. 6.5.1 The Assessee did not dispute the following facts: (i) the assessee trust received bank loan of Rs. 4,00,00,000/- on 29/9/2015 (ii) the trust transferred Rs. 4,00,00,000/- to Smt Mercy Latha the Managing Trustee in the last week of October 2015. (iii) Smt Mercy Latha purchased the land (situated at 52, Thaiyur A Village and/or Thaiyur B Village, Chengleput District) on 28/10/2015 after receiving Rs. 4,00,00,000/- from trust for a sale consideration of Rs. 3,50,00,000/- vide Sale Deed Document No. 13536/2015 and (iv) leased out the said property to the Trust for 3 years commencing from 22/12/2015 vide lease deed dt 22/12/2015. 6.5.2 During the course of the hearing of the appeal, the appellant contested that Managing Trustee gave personal guarantee for the loan taken by the Trust. But the fact remains that loan was sanctioned in the name of the assessee trust and the loan was repaid by the Trust and not by the manag....
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....uld be an income of trust, chargeable to tax". 6.6.3 In [2016] 69 taxmann.com 71 (Chennai - Trib.) Deputy Director of Income-tax (Exemptions)-III vs Mahalakshmi Kunjitha Patham Educational & Charitable Trust, the Hon'ble ITAT Chennai Bench 'A' held - Where funds of assessee-trust were transferred to trustee for his benefit, exemption under section 11 was rightly disallowed. 6.7 Respectfully following the above stated case-laws, the disallowance of exemption claimed under section 11 in view of section 13(1)(c) read with section 13(2)(a), is upheld. 6.8 Alternate plea: In the written submission, the appellant made alternate plea that the exemption under section 11 could be denied only to the extent of conditions violated as per Section 13(1)(c) of the Act and relied on the decision of the Hon'bie High Court of Madras in [2015] 53 taxmann.com 85 (Madras) Commissioner of Income-tax vs Working Women's Forum. 6.8.1 In [2015] 53 taxmann.com 85 (Madras) Commissioner of Income-tax Working Women's Forum, the Hon'ble High Court of Madras held -In case of a trust registered under section 12AA, only such part of income which is violative of section 13(1)(d) can be ....
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....nt in INR Scholarship to students 9,99,050 Flood Relief work 57,319 Salary Payable 8,65,937 P.F. Payable 75,277 Rent payable 3,00,000 Total 22,97,583 5. Aggrieved by an appellate order passed by learned CIT(A), the assessee has filed an appeal before tribunal. The appeal was heard through Video Conferencing. It is a stay granted matter wherein tribunal vide its order dated 13.03.2020 in SP No. 112/Chny/2020 was pleased to grant monthly installment scheme of Rs. 2,00,000/- per month. On being asked by the Bench, the Ld.Counsel for the assessee made statement before the Bench that the assessee-trust is regularly depositing monthly installment of Rs. 2,00,000/- as directed by Hon'ble Tribunal , vide order in SP No.112/Chny/2020 dated 13/03/2020. It was stated before the Bench by learned counsel for the assessee that all monthly installments falling due upto-date till the month of June 2020 had been duly deposited to the Credit of Central Government and the assessee undertakes to produce necessary paid challans before the Department. The Ld.DR submitted that instructions will be issued to AO to collect all paid challans towards payment of monthly installments paid by asse....
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....hich are very difficult to obtain . It was submitted that the said property was duly incorporated in the asset side of Balance Sheet of the assessee-trust as 'Leasehold Land' -Rs. 4,00,00,000/- . Our attention was drawn to appellate order passed by Ld.CIT(A) , para 4, placed at Page No.61 of the Paper Book and it was submitted that Mrs. Mercy Latha, Managing Trustee stood personal guarantor for loan been granted by UBI in favour of the assessee-trust. It was also submitted that collateral securities were offered by Mrs. Mercy Latha by way of her personal properties in favour of UBI to secure the loan granted by UBI in favour of assessee-trust. Our attention was also drawn to Page No.70 of the Paper Book, para No.6.1 of learned CIT(A) appellate order to submit that the aforesaid asset being land was duly disclosed in the Balance Sheet as 'Leasehold Land'-Rs. 4,00,00,000/-. Our attention was also drawn to para 6.3 of learned CIT(A) order to submit that Mrs. Mercy Latha, Managing Trustee offered her personal properties as collateral securities and also stood personal guarantee for the loan been granted to the assessee-trust by UBI. It was also submitted by learned counsel for the asse....
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....in denying benefit of exemption under Section 11 & 12 of the 1961 Act. The learned counsel for assessee relied upon decision of Jaipur Bench of ITAT in the case of Kendriya Academy Vidhyalaya Shiksha Samiti v. ACIT, Circle-1, Kota , reported in (2016) 73 taxmann.com 391(Jp.Trib.) and prayers were made by learned counsel for the assessee for setting aside matter to the file of AO for fresh adjudication and it was submitted that there was a fiduciary capacity in which Managing Trustee of the assessee-trust namely Mrs. Mercy Latha was holding the aforesaid property. Further, learned counsel for the assessee relied upon decision of Bangalore Bench of ITAT in the case of BTM Education Trust v. ACIT reported in (2006) 6 SOT 716 (Bang.-trib.) and it was submitted that no benefit was obtained by the Trustee in the instant case and hence benefit of Section 11 and 12 of the 1961 Act cannot be denied to the assessee. The Ld. DR. on the other hand, drew our attention to Page No.73 of the Paper Book, Para 6.6.1 of appellate order of Ld.CIT(A) and drew our attention to judgment of Hon'ble Allahabad High Court , wherein Hon'ble High Court has held that provisions of Section 13(1)(c) and 13(2)(a) ....
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....ate consideration of Rs. 3,50,00,000/- , and registration of said land was not done in favour of assessee-trust . Thus, the land was acquired out of the funds transferred by assessee-trust, except an amount of Rs. 30 lacs which was paid by Mrs. Mercy Latha to seller of the land on 28.11.2014(almost one year back), as per details recorded in the sale deed. The agreement to sell entered into by Mrs. Mercy Latha with sellers of land while advancing Rs. 30 lacs in November 2014 is not brought on record. The said land as per sale deed dated 28.10.2015 is described as an agricultural land. The said sale deed dated 28.10.2015 is placed in paper book filed by assessee with the tribunal at page 10-23. Mrs. Mercy Latha, Managing Trustee executed lease deed with respect to said land in favour of the assessee trust for a period of three years on 22nd December 2015, free of rent. The said lease deed is placed in paper book filed by assessee with tribunal at page 24-28. The assessee has now placed before the tribunal for the first time, Minutes of the Meeting of the Board of Trustees dated 03.09.2005 which stipulates that authorization/approval was granted by Board of Trustees to Mrs. Mercy Lath....
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....ition , the said property was handed over to assessee-trust for construction of School for which three years lease was initially entered into , free of rent and later fresh long term registered lease was entered into for a period of 33 years in favour of assessee on a nominal rent of Rs. 1500 per month. Thus, claim is made that no benefit whatsoever is derived by Mrs. Mercy Latha out of said property which technically was registered in the name of Mrs. Mercy Latha although it was funded by assessee out of loan borrowed from UBI. It is also to be seen whether this rent albeit nominal has breached the conditions as are stipulated u/s 13(1)(c) and 13(1)(d) of the 1961 Act and will it tantamount to Managing Trustee deriving benefit from the said property which was funded by assessee and more so ownership of the property technically stood in favour of Mrs. Mercy Latha. It is also claimed that an asset in the form of Leasehold Land to the tune of Rs. 4,00,00,000/- is shown in the Balance Sheet of the assessee-trust. Thus, it is claimed that since asset was held in fiduciary capacity by Mrs. Mercy Latha , Managing Trustee for benefit of assessee-trust, it could not be said that she has de....
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....ed, utilization of said land, approvals obtained from competent authorities in the name of assessee-trust as well status of construction of School Building and amount spent by assessee for construction of School Building shall also be considered by AO in denovo assessment, before coming to conclusion whether any benefit was derived by Managing Trustee out of said land. We have also observed that the said land is incorporated in the Balance Sheet on asset side as 'Leasehold Land'-Rs. 4,00,00,000/- and an amount of Rs. 4,00,00,000/- was borrowed by assesee from UBI in September, 2015, which was later transferred to bank account of Mrs. Mercy Latha in the first week of October 2015. However, as per Sale deed dated 28.10.2015, the land was acquired for Rs. 3,50,00,000/- by Mrs. Mercy Latha , while Mrs. Mercy Latha has got transferred Rs. 4,00,00,000/- from assessee-trust and the said land is capitalized at Rs. 4,00,00,000/- in the books of accounts of assessee-trust. The differential of Rs. 50,00,000/- retained by Mrs. Mercy Latha was not explained by the assessee-trust neither the same was enquired by authorities below in first round of litigation and whether the said differential lea....