TaxTMI 
TaxTMI 
2020 (8) TMI 715
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal filed with the Income-Tax Appellate Tribunal, 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k Loan - UBI' and on the asset side an amount of Rs. 4 Crores was shown as 'Leasehold Land'. The assessee 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. Me....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of immovable property in the name of Managing Trustee , the AO invoked provisions of Sec.13(1)(c) r.w.s.13(2) of the 1961 Act and held that the funds of Trust has 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. ".....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n tribunal upheld order passed by AO denying assessee exemption u/s 11 owing to violation of Section 13(1)(c) and 13(1)(d) of the 1961 Act. The AO also relied upon decision of Hon'ble Supreme Court in 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and hence section 13(l)(c) is not applicable. 6.4 As per Circular No, 100 dated 24th January, 1973 of CBDT - repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purposes. 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 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irectly or indirectly reached interested person namely, 'P', there was a clear violation of sections 13(1)(c) and 13(2)(a). Therefore, provisions of sections 11 and 12 would not operate so as to exclude income of trust from total income of previous year and, consequently, all receipts of trust either by voluntary contribution or from income derived from its property would 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 reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowed depreciation on the capital asset acquired during previous year relevant to ay: 2016-17. Further, assessee was aggrieved by bringing into tax , expenses which were held to be not connected to earning of an income and since exemption u/s 11 was denied, the following expenses stood disallowed by both AO as well learned CIT(A) who upheld assessment order passed by AO. The expenses which stood disallowed by both AO as well learned CIT(A), are as under: Particulars Amount 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 directe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was submitted by learned counsel for the assessee that Mrs. Mercy Latha, Managing Trustee held the said property in fiduciary capacity for the benefit of the trust and she has not derived any benefit from said property. It was submitted by learned counsel for the assessee that as per Section 31 of Tamil Nadu Recognition of Private Schools Regulation Act, 1973, it is very difficult and cumbersome procedure to get property registered in the name of Trust as permissions are required from competent authorities which 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 Pag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a period of 33 years. It was also submitted that no benefit whatsoever was derived by Managing Trustee and she was holding the property in fiduciary capacity for benefit of assessee-trust. It was submitted that there is no finding by learned AO/CIT(A) that Mrs. Mercy Latha, Managing Trustee has drawn any benefit out of the Trust-Property and hence it was prayed that there is no violation of Sec.13(1)(c), Sec.13(1)(d) & Sec.13(2) of the 1961 Act and Department erred in assessing the assessee-trust as AOP and 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 Educatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 4,00,00,000/- . Mrs. Mercy Latha , Managing Trustee of the assessee-trust acquired and got registered a land admeasuring 2 acres situated at 52, Thaiyur A Village (Thaiyur B Village), Chenglepattu Taluk , Kancheepuram District, Tamil Nadu in her name for Rs. 3,50,00,000/- , as per registered sale deed dated 28th October 2015 . Thus, the aforesaid land was registered in the name of Mrs. Mercy Latha who is described as an absolute owner of the said land as per aforesaid sale deed dated 28.10.2015 for an aggregate 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 tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....again an additional evidence filed by assessee for the first time before tribunal and it has not stood the test of verification/scrutiny by lower authorities. It is the claim of the assessee-trust that although the property was technically registered in the name of Managing Trustee, Mrs. Mercy Latha but it was always held by her in fiduciary capacity for assessee-trust. It is also claim of the assessee that no benefit whatsoever was obtained by Mrs. Mercy Latha from the said property and immediately after acquisition , 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade from UBI . The assessee is paying interest on said loans and also repaying principal amount out of its own funds. The factum of Mrs. Mercy Latha standing personal guarantor to the said loan as well offering of personal properties as collateral securities to secure said loan shall also be considered by AO in denovo assessment to arrive at decision whether the assessee has infringed provisions of Section 13(1)(c), 13(1)(d) and 13(2) of the 1961 Act. The post acquisition activities such as long term lease granted, 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 ....