TaxTMI 
TaxTMI 
2025 (6) TMI 481
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....f liability as income of the Appellant. Thus, the said addition being untenable and bad in law may be quashed. 3. On facts and in the circumstances of the case and as per the law, the learned commissioner (Appeals) erred in confirming the addition of Rs. 4,80,00,000/-as income of the Appellant on the allegation of cessation of liability despite observing that section 41 of the Act does not apply. Thus, the said addition being untenable and bad in law may be quashed. 4. On facts and in the circumstances of the case and as per the law, the learned commissioner (Appeals) erred in confirming the addition on account of notional rent of Rs. 18,61,409/- with regard to the premises given to Life Supporters Institute of Health Sciences (LIHS)/Another charitable trust under the head Income from other sources. Thus, it may be deleted. 5. On facts and in the circumstances of the case and as per the law, the leamed commissioner (Appeals) failed to appreciate that neither sections 11 to 13 of the Act governing trust taxation nor section 56 contemplate an addition on account of notional income. Thus, the addition of Rs. 18,61,409/- being untenable in law and without any basis may be dele....
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....t from M/s. Kamat Hotels (India) Ltd. From the details filed, the Ld.AO noted that, the said deposit was received by the associate during the year 1995 and 1996 as a security deposit towards the management of the proposed international scholars hostel based on an MOU signed between the assessee and Kamat Hotels India Ltd. It was also noted by the Ld.AR that, the project was stalled and the arrangement was in dispute as per note 6 to the audited accounts of the assessee. 3.1 The Ld.AO issued notice under section 133(6) of the Act, to M/s. Kamat Hotels India Ltd., calling upon them to furnish details in regards to the agreement and the deposit that was given to the assessee by M/s.Kamat Hotels. In response to the notice, the Kamath hotels replied vide letter dated 01/09/2018. It was submitted that, the said deposit was not repaid back by the associate and also no legal proceedings are pending recover the said amount due to which M/s.Kamat Hotels have written off the said amount from the books of account. M/s.Kamat Hotels also provided in support. 3.2 The Ld.AO noted that, during the financial year 2013-14, Kamat Hotels had written off the deposit given by it to the assessee amounti....
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.... 60 per square feet per month for a year, and disallowed Rs. 18,61,409/- in the hands of the assessee. Aggrieved by the order of the Ld.AO the assessee preferred appeal before Ld. CIT(A). 4. The Ld.CIT(A) observed that, during cross-examination of Kamath Hotels India Ltd., the facts remained the same, in respect of the liability having seized, due to write off of Rs. 4.80 crores by, Kamat Hotels. The Ld.CIT(A) thus confirmed the addition made by the assessing officer. 4.1 In respect of notional rent computed in the hands of the assessee for the premises used by LIHS, the Ld.CIT(A) noted that, the assessee and LIHS, being related and interested parties, using such large portion of the property of the assessee without any consideration was not justified. He thus upheld the addition made by the assessing officer. Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before the Tribunal. 5. The Ld.AR at the outset submitted that Ground No.1-3 is in respect of addition of Rs. 4.80 crores in the hands of the assessee. The Ld.AR submitted as under: The sum of Rs. 4,80,00,000/- was never written off by Kamat Hotels (I) Ltd., which is evident from the financial statements of t....
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....r the sake of argument and without any admission, if the cessation of liability is considered taxable as income in the case of a charitable trust, the addition of Rs. 4,80,00,000/- cannot be made in the previous year relevant to the assessment year under consideration. He submitted that, this is because, according to Ld.AO, the cessation, if any, occurred during the financial year 2013-14. The Ld.AR submitted that, the Ld.AO himself remarked that the entry of provision was made by Kamat Hotels India Ltd. in the financial year 2012-13, pertaining to the assessment year 2014-15. In such circumstances, any income taxable due to the alleged cessation could only be assessed in the hands of the assessee in the assessment year 2013-14, and not in the present assessment year under consideration. He relied on sections 4, 5, 4,5,7, and 9 to support this submission. 5.3 It is, however, submitted that, alleged cessation did not take place in the previous year relevant to the assessment year under consideration. 6. The Ld. AR submitted that the observations of the Ld. CIT(A) and the Ld. AO regarding expiry of limitation is incorrect, as the assessee continues to record the alleged deposit as ....
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.... Company filed its Statement of Claims before the arbitrator. The owners also filed their reply and also made a counter claim for compensation and interest thereon before the arbitrator besides claiming that the claim of the Company was barred by limitation of time. Subsequently, vide letter dated 12th September, 2013, the arbitrator resigned and the matter could not proceed further thereafter. The Company is contemplating to approach the High Court again for directions. Adjustments, if any, to the expenditure written off and provision made as above, will be made on disposal /conclusion of the Arbitration Proceedings in the above matter." 7.2 It is noted that, Kamat Hotels, in its audited financial statement for the period ending on 31/03/2021 at page 67, accounted for the advance paid to the assessee amounting to Rs. 4.88 crores under the category of "other non-current assets". The entry and note 15.1 is reproduce as under: "15.1 In terms of the Memorandum of Understanding with a Public Trust owning a plot of land in Mumbai, the Company had paid Rs. 488.62 lakhs as security deposit and incurred expenditure of Rs. 207.93 lakhs for a proposed hospitality project on the said land....
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....her recovery methods. 8.2 In our view, the authorities' observation below lacks any basis and is unsupported by any provisions of the Act. Under these circumstances, Kamat Hotels' decision to write off the alleged advance does not ipso facto imply that the liability has ceased in the hands of the assessee. 8.3 Based on the above facts, in our view the quantification of the liability depends on the award passed by the Ld. Arbitrator. We therefore do not find any force in the addition made in the hands of the assessee during the year under consideration, and the same deserves to be deleted. Accordingly, Grounds 1-3 raised by the assessee stand allowed. 9. Ground No. 4 to 5 raised by the assessee concern the notional rent calculated for the trust property used by LIHS without any consideration. 10. The Ld.AR submitted that, the addition of notional rental rent was made in the hands of the assessee in respect of the property that was used by LIHS. He submitted that the assessee being a trust is governed by provisions of section 11 to 13 of the Act, and provisions of section 14 cannot be invoked. He thus submitted that addition of notional rental is untenable under the hea....
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....sed the submissions advanced by both sides in the light of the records placed before us. 11. Charitable Trust or Institution has been provided a special fiction of law for income and application of income. These operate within section 2(15), 2(24) (iia), 11, 12, 13, etc. of the Income Tax Act. The income includes income derived from the property held under trust, including income being profits and gains of business which is incidental to the main objects of the trust or institution, subject to satisfying the conditions laid down thereon as contained in s 11(4A). Also it includes income in respect of business undertaking held under trust in accordance with s 11(4). 11.1 A trust may have income from all of the heads of income, except the head Salaries. However, the income from property held for charitable or religious purposes cannot be equated with the income which is computed under the general provisions of the Act in respect of the other assessees who are not entitled to the benefit of section 11. 11.2 Section 14 provides heads of income under which all income for the purposes of charge of income tax and computation of total income are required to be done. Income of a trust is ....