TaxTMI 
TaxTMI 
2017 (9) TMI 2056
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....the persons as specified u/s 13(3) of the Act, whereby the Trust disqualified for exemption u/s 11 as per section 13(1)(c)(ii) of the Act. The Assessing Officer further observed that in the books of account of the Trust as on 31.3.2005 an amount of Rs. 8,17,434.55 was due from M/s Moidu's Medicare Pvt Ltd., a company in which the trustees are substantially interested. The Assessing Officer further observed that the Trust has also given an advance of Rs. 1,65,321.72 to M/s Moidu's Medical Pvt Ltd., from National Hospital College of Nursing's account. 2.1 Similarly, an amount of Rs. 19,95,817/- has been paid as an expenditure incurred on Nursing College Building by the Trust during the year, in the name of Dr K M Mehaboob and two others. The Assessing Officer further observed that the Trust has spent an amount of Rs. 1,61,333/- towards construction of building on the lease-hold land belonging to two Trustees and the amount has been debited to the advance account in the name of Dr K M Mahaboob, Dr K M Ashik and Dr K M Navas, who are all the trustees. The building is required to be surrendered to the lessors, free of cost in lieu of the license fee as per clause 6 of the license fee....
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....nt between the company, the lessor has to train the nursing students in their hospital for which the assessee has to pay Rs. 650/- per month per student for which the amount has been paid in advance which cannot be considered as a diversion of funds to the person as specified u/s 13(3) of the Act. 2.4 Similarly, with regards to the advance in the name of Dr K M Mahaboob and two others, the Trust entered into a license fee agreement with the Trust for construction of building to be used for running its Nursing College. As per the agreement, the assessee trust has to incur the cost of construction of building and the building should be used over a period of 20 years without any payment of rent. It was submitted that although as per the license fee agreement, the entire cost of construction was to be met by the assessee trust; but only a part has been incurred by the Trust and the balance has been incurred by the Trustees. The amount incurred by the Trust has been adjusted towards license fee payable over a period of 20 years which workout to Rs. 1,24,154/- for a total plinth area of 1111.65 sq, mtrs., which is far below the prevailing market rent. Therefore, the question of allowi....
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....oks of account. Even assuming for a moment that there is debit balance appeared in the company account and if the debit balance is adjusted against the credit balance appeared in the name of the trustee, still there is a credit balance in the name of the trustee. Therefore, the said transaction cannot be considered as an isolated transaction for the purpose of section 13(1)(c ) of the Act to hold that the assessee has diverted its funds to the persons as specified u/s 13(3) of the Act. 3.1 As regards the amount of outstanding in the name of the company in the books of account of National Hospital College of Nursing, it was submitted that the trust has entered into an agreement with the company for providing nursing training to its students of the hospital owned by the assessee trust for which an advance payment of Rs. 2,50,000/- has been made on 25.10.2004 by way of cheque drawn on ICICI Bank Ltd. The trust has availed the service of the company for training to its students for which it had paid an advance payment and the same has been adjusted over a period of years. The transaction between the trustees of the company cannot be considered as a diversion of funds to the persons ....
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....ered into agreement with the company for providing necessary training to its students in the hospital, owned by the company for which an advance of Rs. 2,50,000/- has been paid. The said amount has been adjusted towards fee payable to the company for giving training to its students; therefore, it cannot be considered as a diversion of funds to the persons as specified u/s 13(3) of the Act. 3.6 As regards the advance of Rs.19,95,817/- to Dr K M Mahaboob and two others for construction of building on the lease-hold land owned by the trustees, the CIT(A) has given a categorical finding that the assessee company benefited out of the transaction with the trustees by construction of the building on the lease-hold land owned by the trustees. The CIT(A) further observed that the trust has constructed the building by spending part of the amount towards construction and adjusted the amount towards license fee payable over a period of 20 years which works out to Rs. 1,24,154/- per annum for a building consisting of plinth area of 1111.65 sq. mtrs which is far below the prevailing market rent. The CIT(A) referring to the decision relied upon by the ld AR, in the case of Shubram Trust vs DIT....
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..../s 11 of the Act. Therefore, it was submitted that the Assessing Officer has rightly denied the benefit of exemption and prayed that his order should be upheld. 4.2 On the other hand, the ld AR for the assessee strongly supported the order of the CIT(A). The ld AR referring to the paper book filed by the assessee, submitted that the documents submitted before the Assessing Officer as well as the CIT(A) clearly indicate that the trust has repaid the amount taken from the Trustees; but inadvertently debited the payment in the name of the company as per the instructions of the Trustee, who is also the director of the company. Even assuming for a moment that the debit has been appeared in the company account, is without any benefit to the trustees; there is credit balance in the name of the trustees, if the debit balance is adjusted against the credit balance, still there is a credit balance in the name of the trustees and therefore, the said transaction cannot be considered as an isolated transaction for the purpose of section 13(1) (c) or (d) of the Act. The ld AR referring to the paper books submitted that the assessee has entered into an agreement with the company for providing ....
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....13(1)(c) of the Act. Therefore, he opined that the trust has diverted its funds in contravention of provisions of section 13(1)( c), thereby not entitled to exemption u/s 11 of the I T Act 1961. 5.1 The provisions of section 13(1)(c) imposed certain restriction on utilization of income of the trust which claims exemption u/s 11 of the Act. As per clause ( c) of sub. sec (1) of section 13, if any part of income or any property of the trust or the institution, is used or applied directly or indirectly for the benefit of any person referred in sub. Section (3), then the trust is not entitled to exemption u/s 11 of the I T Act. Similarly, provisions of sec. 164(2) states that in a case where the whole or any part of the relevant income is not exempt u/s 11 or sec. 12 by virtue of the provisions contained in clause ( c) or clause (d) of sub. sec. (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Therefore, if the trust diverts its fund then, only part of the income is chargeable to tax at the maximum marginal rate of tax; but not the whole income of the trust. This provisions further supported by the decision of th....
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....t of the Managing Trustee, the accountant of assessee trust inadvertently debited this amount to the account of M/s Moidu's Medicare Pvt Ltd. In the subsequent year the mistake was rectified by the assessee trust. Therefore, there is reasonableness in the argument of the assessee trust that this amount represents repayment of loan availed from the Managing Trustee and the amount was paid to M/s Moidu's Medicare Pvt. Ltd, upon the instruction of the Managing Trustee, who is also the Managing Director in that firm, in order to avoid multiple transactions and save time. 5.2 As regards debit balance of Rs. 1,65,361.72 in the books of National Hospital College of Nursing, an institution under the assessee trust, in the name of M/s Moidu's Medicare Pvt Ltd, it was the contention of the -assessee trust that they had made an advance payment by way of cheque to M/s Moidu's Medicare Pvt Ltd as training charges of nursing students in accordance with the agreement entered into with them on 01/06/2002. The Assessing Officer's argument that there is no evidence to suggest that the payment was made in accordance with the agreement is devoid of any merit. The fact that....
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....et by the trustees themselves. Further, I find that the rent to be paid for the building at Rs. 9.30/- per sq. metre per month (1111.65 sq. metre Rs. 1,24,154/- per annum) is very reasonable. The decision of the Hon'ble ITAT, Bangalore Bench in the case of M/s Sbubhram Trust Vs DCIT(Exemption) 317 ITR (AT 65) relied by the Assessing Officer in the remand report is not applicable to the facts of this case as in that case, the assessee had constructed a community hall in a land belonging to HUF, Karta of which was one of the trustees, and there was no investment by the trustee in that building. However in the instant case out of the total investment of Rs. 70.84 lakhs, only the balance of Rs. 24.83 was the contribution of the assessee trust towards the construction. Further, the rent fixed in that case was Rs. 1,00,066/-, which the Hon'ble Tribunal observed was made ignoring the business. capacity of the building whereas in the appellant's case the rent works out only to Rs. 10,346/- per annum which is quite reasonable considering the utility of the building to the Trust and the market rent for similar properties. In view of this, it cannot be held that the trustees have ....
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....e ld AR of the assessee trust that this amount represents repayment of loan availed from the Managing Trustee and the amount was paid to M/s Moidu's Medicare Pvt Ltd upon the instructions of the Managing Trustee. 5.4 As regards the debit balance of Rs. 1,65,361.72 in the books of National Hospital College of Nursing, the facts borne out from the records clearly shows that the said debit balance is on account of an agreement entered between the trust and the company for providing nursing training to its students of the Trust. The Trust has paid Rs. 2,50,000/- in advance towards training fee and the same has been adjusted against fee payable for its students. The Assessing Officer neither in the assessment order nor in the remand report has brought out any evidence to show that this advance was used by the trustee for their personal benefit. Therefore, we are of the considered view that there is no diversion of funds in so far as the debit balance in the name of M/s Moidu's Medicare Pvt Ltd and hence, the CIT(A) was right in holding that there is no diversion of funds of the Trust so as to get benefit to the trustees referred to in section 13(3) of the Act. 5.5 As regards the d....