TaxTMI 
TaxTMI 
2024 (4) TMI 458
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Revenue arise out of a common order dated 30.09.2019 of the Income Tax Appellate Tribunal [hereinafter referred to as the 'Tribunal'], Cochin Bench, they are taken up for consideration together and disposed by this common judgment. For the sake of convenience, the details of the various appeals with reference to the assessee and the assessment year concerned, as also co-relating it to the appeals that were filed before the Tribunal, are provided in tabular form below:- Sl. No. ITA No. Assessee Assessment Year Appeal before the Income Tax Appellate Tribunal 1 I.T.A. No. 48/2020 Smt. Gracy Babu 2009-10 I.T.A. No. 208/2019 2 I.T.A. No. 46/2020 Sri. Jose Thomas 2009-10 I.T.A. No. 211/2019 3 I.T.A. No. 47/2020 Smt. Reena Jose 2009-10 I.T.A. No. 207/2019 4 I.T.A. No. 49/2020 Smt. Gracy Babu 2010-11 I.T.A. No. 209/2019 5 I.T.A. No. 51/2020 Sri. Jose Thomas 2010-11 I.T.A. No. 212/2019 6 I.T.A. No. 54/2020 Smt. Gracy Babu 2011-12 I.T.A. No. 239/2019 7 I.T.A. No. 55/2020 Smt. Gracy Babu 2011-12 I.T.A. No. 210/2019 8 I.T.A. No. 56/2020 Sri. Jose Thoma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 143(3) read with Section 153A for the assessment years 2003-04 to 2008-09 and under Section 143(3) for the assessment year 2009-10 in relation to the persons who were searched, namely, Gracy Babu, Jose Thomas and P.J. Paulose, who were the heads of the respective trustee families. No assessments in consequence to search were made in relation to other family members who were trustees by invoking provisions of Section 153C of the I.T. Act. Placing reliance on the seized documents, the Assessing Authority found that the erstwhile trustees had in fact received approximately Rs. 37.5 crores towards consideration for relinquishing their trusteeship but they had camouflaged these receipts under different heads by showing the receipt of Rs. 14.55 crores towards reimbursement of amounts paid by assessees for clearing outstanding debts and liabilities of the Trust as on the date of the agreement, and also for completing certain ongoing constructions that had been undertaken by them. An amount of Rs. 12.5 crores was shown as received by way of consideration for sale of approximately 56 acres of rubber plantation to the Believers Church. Re: I.T.A. Nos. 46/2020, 47/2020, 48/2020, 49/2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r advantage in the guise of tax planning and is not such a conduct one of absolute lack of trust ? 7. The additions to the income of the trustees by way of excess consideration received for the sale of the rubber plantation was made in relation to Jose Thomas, Gracy Babu and Reena Jose for the assessment years 2009-10 [for all three] and 2010-11 [for Jose Thomas and Gracy Babu]. While the Assessing Authority and the First Appellate Authority had found that the excess sale consideration received by the said assessees was in fact amounts towards consideration paid by the Believers Church for their relinquishment of their trusteeship in the Carmel Educational Trust and was liable to be assessed in their hands, the Tribunal, in the order impugned in these appeals, found otherwise. The reasoning of the Tribunal is found in paragraphs 11.4 to 11.8, which read as follows: "11.4 We have heard the rival submissions and perused the record. In the present case, there was unsigned Agreement dated 23/02/2009 wherein the sale consideration was shown at Rs. 6.5 crores for sale of rubber plantation. Later as per registered agreement, royal deed, it was changed to Rs. 12.5 crores. In ot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers Church, the consideration received for such relinquishment is nothing but a capital receipt and gain on such transaction cannot be considered as "income from other sources". 11.5 The contention of the Ld. AR is that since there is no cost of acquisition, it is not possible to compute capital gain as section 55(2) of the I.T. Act does not include this kind of asset as capital asset. For better understanding, we will examine the provisions of section 55(2) of the I.T. Act. S. 55 (2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carnage permits or loom hours - (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price: and in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49shall be taken to be nil; (aa) in a case where, by virtue of holding a capital....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1 day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1 day of April, 1981, at the option of the assessee; (iii) where the capital asset became the property of the assessee on the distribution of the capital asset of a company on its liquidation and the assessee has been assessed to income tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (v) where the capital asset, being a share or a stock of a company, became the property of the assessee on - (a) the consolidation and division of all or any of the share capital of the company into shares of larger amount** ** **" 11.6 A bare reading thereof would indicate how the legislature contemplates that come chargeable under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax. The Department's Appeal to the High Court was dismissed and that is how it approached the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble Supreme Court held as under: '(8) In 1981 this court in CIT v. B.C. Srinivasa Shetty(1981) 128 ITR 294; (1981) 2 SCC 460 held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as "never intended by section 45 to be the subject of the charge". In that case, the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Pathak J. as his Lordship then was, speaking for the court said (page 300) "what is contemplated is an asset....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned, the transfer of such capital asset would not attract capital gains. The appellant now says that CIT v. B.C. Srinivasa Shetty's case [1981] 128 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary. (12) In A. R. Krishnamurthy v. CIT (1989) 176 ITR 417 this court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case, however, the Department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court, we u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. (See S. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 1TR 700 (SC). (17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT (1966) 61 ITR 428 (SC)". 11.8 Thus, the conclusion of the Supreme Court is that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "Capital gains" as opposed to assets in the acquisition of which no cost at all can be conceived. There was no cost of acquisition, which was determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. Sub-section (2) of section 55 clause (a) having been amended, there is no stipulation with regard, to relinquishment of trusteeship. However, even in the case of tenancy ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....powers to some other body of men and create them trustees in their own place unless this is clearly permitted by the trust deed, or agreed to by the entire body of beneficiaries. A person who is appointed a trustee is not bound to accept the trust; but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the Court or with the consent of the beneficiaries or by the authority of the trust deed itself. Nor can a trustee delegate his office or any of his functions except in some specified cases. The rules against renunciation of the trust by a trustee and against delegation of his functions by a trustee are embodied, in respect of trusts to which the Indian Trusts Act applies, in S. 46 and 47 of that Act. These sections run thus:- "46. A trustee who has accepted the trust cannot afterwards renounce it except (a) with the permission of a principal Civil Court of Original Jurisdiction, or (b) if the beneficiary is competent to contract, with his consent, or (c) by virtue of a special power in the instrument of trust. 47. A trustee cannot delegate his office or-any of his duties either to a co-trustee or to a stra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regulations on behalf hereof. All the movable and immovable properties connected with the said school shall come to vest in the trustees and they shall be managed and administered in accordance with the rules and regulations framed on that behalf. The trustees for the time being shall have the power to alter and cancel the rules and regulations and to frame new ones instead thereof at the time when necessary. The treasurer shall have the power to open the cash account in some reliable bank and he shall always arrange for cash dealings to the benefit of the said school in accordance with the holy law of Islam. (Shariat)." (20) The provision for the appointment of new trustees cannot by any stretch of imagination be held to mean the substitution of the old body of trustees by a new body. That provision only permits the old trustees to add to their number. Nor does the power to frame rules and regulations for the benefit and efficient running of the school authorise the trustees to give up the management of the school themselves or to divest themselves of the properties entrusted to them by the trust deed and vest them in other persons. We are satisfied therefore that Cl. 5 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken by the said assessees or any of the trustees, and hence, the payments shown as contractual receipts were nothing but payments received for voluntary relinquishment of trusteeship in favour of certain identified individuals. The CIT (A) also found that there was a credit of Rs. 8.68 lakhs in the books of accounts of Carmel Educational Trust which had gone into the TDS account of Gracy Babu for assessment year 2011-12 and had not been claimed by her and hence the protective addition in the hands of the assessee for assessment year 2011-12 was reduced from Rs. 4.84 crores to Rs. 8.68 lakhs. He however sustained the substantive addition of Rs. 34 lakhs and Rs. 4.50 crores for the assessment years 2009-10 and 2010-11 respectively in the case of both the assessees. 11. The findings of the Tribunal on the above issue are in paragraphs 12.7 and 12.8 of the impugned order and read as follows: "12.7 We have heard the rival submissions and perused the record. The amounts of Rs. 34,00,000/- in AY 2009-10 and Rs. 4.50 crores in AY 2010-11 each received by Gracy Babu and Jose Thomas from which is said to be towards the on-going construction work as mentioned in clause 5 of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the said constructions as per clause above which will be accounted by the first party in the books of accounts of the Trust. 4. The 2nd party i.e. parties 1 to 3 and 8 confirm that they have not further claim from the amount of Rs. 3.75 crores as per clause 4 of the agreement other than the amount already appropriated towards the cost of construction. 5. The 2nd parties 1 to 3 and 8 to 11 will settle the accounts in respect of the balance amount due to the 1st party from the payment of Rs. 9 crores in the event if requires so. 6. The 2nd party i.e. parties 1 to 3 and (8, 9, 10 and 11) in the said agreement has undertaken the construction as per clause 5 of the Deed dated 10.03.2009, incurring a cost of Rs. 9.68 Crores for which the statement will be filed by the said parties 1 to 3 and 8 to 10 to the first party in the agreement dt. 10.03.2009 within one month from today." 12.8 The Believers Church had disclosed this construction in its Balance Sheet as on 31/03/2010 and 31/03/2011. Being so, there was construction activity and the Believers Church paid the contract amount to these two assessees. By any stretch of imagination, it cannot be cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e amount. In relation to the Trust, the finding of the Tribunal, which is impugned in I.T.A. No. 6/2021 filed by the Department in relation to assessment year 2010-11 is found in paragraphs 19 to 19.5, which read as follows: "19. The CIT(A) observed that the assessee had created a fresh asset in his balance sheet for AY 2010-11 which has in the subsequent years been clubbed in the building expenditure undertaken by the assessee Trust during the relevant year and hence, an enhancement notice was given to the assessee in reply to which the assessee submitted that it was the old trustees who have benefited from the various transactions and none of the capitation fees collected by them was passed on to the trust. Further, it was stated that a payment of Rs. 14,54,59,169/- was old trustees as per agreement and repeated request from them stating that they have constructed the building and supporting vouchers and bills shall be submitted to the trust for the construction made. It was submitted that the payment was made and remitted the TDS portion u/s 194C also on the payment towards expenses incurred by them for constructing the building. It was submitted that the advance given ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 14,54,59,169/- made to them by the Trust. Such benefit would have been there, if it was diversion of Trust funds by virtue of section 13(2)(g). It was submitted that the payments were made to offset the cost of construction of building done by the erstwhile Trustees and hence, there was no diversion. 19.3 The Ld. AR submitted that the Trust did not claim Rs. 14.55 crores as expenditure or application and hence, the same cannot be added to income of the Trust (copy of Balance Sheet and Income and Expenditure account for year ended 31.03.2009, 31.03.2010 and 31.03.2011 along with enclosures placed before the Bench in Serial Number 11 to 12 of the Paper Book). Even otherwise, it was submitted that the total value of the building with the built up area of 236.999.78 Square feet would not be less than Rs. 33.18 Crores against the balance sheet value as on 31.03.2018 is only Rs. 24,38,23,931.5 and this will offset the difference. It was submitted that the assessee had given construction contract to erstwhile Trustees who carried out the same and since the assessee did not undertake construction it was not in possession of bills and invoices. It was submitted that if at all only....