TaxTMI 
TaxTMI 
2025 (5) TMI 1711
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Brief facts as noted by the Hon'ble High Court are as under:- 2.1 The Carmel Educational Trust, Adoor was constituted by a registered trust deed dated 14.08.2001. It is engaged in running educational institutions imparting education in the subjects of Engineering and Management. The 12 trustees of the Trust belong to three closely related family groups, present assessee's are one of them and their details are as follows: (1) Sri.Babu P. Thomas, his wife Smt. Gracy Babu and their two major sons. (2) Sri.Jose Thomas, his wife Smt. Reena Jose and their major son and daughter. (3) Sri.P.J.Paulose, his wife Smt. Lizzy Paulose and their two major daughters. 2.2 Due to difficulties in managing the College, and also due to the personal differences, the trustees decided to discontinue the business and entered into an agreement with the Believers Church on 10.03.2009, whereby, all the existing trustees resigned from their trusteeship and simultaneously, new trustees nominated by the Believers Church were inducted. The agreement between the parties also provided for payment of Rs. 37.5 crores to the erstwhile trustees for settling their liabilities as well a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of their right as a trustee in Carmal Education Trust was liable to be assessed in their hands, and hence, the AO as well as the CIT(A) taxed these receipts in the hands of the assessee's. However, the ITAT vide its order dated 03.09.2019, held that the amount received by these assessee's in excess to the sale consideration for relinquishment of their rights from the trustship in Carmel Education Trust is a capital receipt and not taxable in the hands of the present assessee's. On appeal of the Revenue, the Hon'ble High Court discussed this issue from para 7 onwards, which reads as under:- "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 assessee's 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er sources" so as to tax the same. This finding of the CIT(A) is not proper. The assesses herein were holding trusteeship in the Carmel Educational Trust which was relinquished in favour of trustees of Believers Church, and this right is nothing but a capital asset. Had the Carmel Educational Trust survived as it is, then they have the right to continue as a Trustee throughout their life time. Once it has ceased to exist and relinquished the right of trusteeship in favour of the new trustees in Believers 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hange: Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil; (b) in relation to any other capital asset - (i) where the capital asset become the property of the assessee before the 1" day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1 st 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 h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st of acquisition. The Department and assessee challenged the decision before the Tribunal and the Tribunal relied upon the Judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR and the amendment to section 55(2) of the Income Tax Act and held that the assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relating to capital gains was met. In other words, the cost of acquisition would be taken as determinable but the rate would be nil. (11) The amendment took effect from 1 April, 1995 and accordingly applied, in relation to the assessment year 1995-96 and subsequent years. But till that amendment in 1995, and therefore covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not in fact be determined, 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 coro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attract section 45 so that the value received would be a capital receipt and assessable if at all only under item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head 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 Naliníkant 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., a person who is appointed as 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. The relevant portion of the said decision reads as under: (16) There cannot, in our opinion, be any doubt about the correctness of the legal position that trustees cannot transfer their duties, functions & 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew body of trustees. It is necessary in this connection to consider the terms of Cl. 5 of the trust deed, That clause is in these words:- "5. All the aforesaid trustees shall be entitled to govern, manage and administer the affairs of the school above. These trustees shall have the power of framing rules and regulations from time to time for the benefit and the efficient running of the school, and they shall have the power to appoint new trustees from time to time in accordance with the rules and 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 trust....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the ITAT to decide the head of income under which these receipts would be taxable under the Income-tax law. 5. The learned Counsel appearing on behalf of the assessee while appraising the facts, argued that the impugned receipts are not taxable under the head income from other sources inasmuch as the AO initially taxed these receipts under the head income from other sources and had the High Court would have been of the view that these receipts are taxable under the head income from other sources, then the Hon'ble High Court would not have restored the matter to the file of the ITAT rather would have affirmed the order of AO. 6. The learned CIT-DR relied upon the authorities below as well as the order of the Hon'ble High Court and pointed out that the limited issue which has been restored to the file of the ITAT is the taxability of the amount under the head is correct head. 7. We have heard the rival submissions and perused the material available on record. So far as the contention of the learned Senior Counsel for the assessee that initially the AO has also taxed this amount as income from other sources is no more relevant inasmuch as the order of the AO got merged in t....