TaxTMI 
TaxTMI 
2026 (2) TMI 1304
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....ic charitable trust holding registration u/s 12A/12AB of the Act. For AY 2016-17, the assessee had filed the return of income on 24.02.2017 declaring gross receipts of Rs. 33,29,56,567/- and admitting NIL income after claiming exemption u/s 11 of the Act. The case of the assessee was selected for regular scrutiny which was completed u/s 143(3) of the Act on 26.12.2018 accepting the returned income. Later on the Ld. Commissioner of Income Tax (Exemptions) [ in short 'CIT(E)'] in exercise of revisionary jurisdiction vested u/s 263 of the Act had set aside the assessment order dated 26.12.2018 holding it to be erroneous and prejudicial to the interests of the Revenue. The Ld. CIT(E) inter alia observed that, the assessee trust had acquired properties in the names of their trustees using the trust funds which was in violation of provisions of Section 13(1)(c) of the Act. The Ld. CIT(E) observed that, the subsequent action of trustees bequeathing their legal title in the land parcels to the assessee trust by Will dated 12.12.2018 did not alter the violation committed by them. The Ld. CIT(E) was of the view that, the execution of will was an after-thought in as much as the trustees would....
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....rship vested with the trustees and not the assessee trust. The AO thus concluded that the trustees had benefitted by registering the land in their own names without spending from their accounts and thus violation provisions of Section 13(1)(c) of the Act. With these observations, the AO made an addition of Rs. 14,70,54,250/- u/s 13(1)(c) r.w. 13(2)(g) of the Act and also denied the exemption claimed u/s 11 in respect of the net income of the assessee trust. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 5. During the pendency of the appeal and having regard to the observations made by the AO, the assessee trust is noted to have sought legal advice and thereafter executed a registered rectification deed 11.04.2023, whereby the original purchase deed was rectified and the name of the purchasers was shown as 'Everwin Educational and Charitable Trust' instead of the trustees and it was deemed that the property was purchased by the assessee trust from the inception and not by the individuals. Further, the property was also mutated in the name of the trust and the encumbrance certificate and property tax was paid in the trust's name. Taking note....
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....thought to avoid the rigors of Section 13(1)(c) of the Act and that this subsequent action could not alter the violation committed during AY 2016-17. The Ld. DR thus urged us to reverse the order of the Ld. CIT(A) and restore the action of the AO. 8. The Ld. AR, on the other hand, first narrated the entire background facts of the case. The Ld. AR submitted that the assessee trust was formed in the year 1992 but it had largely remained inactive until 2015. Until 2015, the trustees of the assessee trust Mrs V Maheswari and Mr. B Purushothaman were running and operating two proprietary educational institutions under the name and style of 'Everwin Vidyashram' and 'Erwin Matriculation Higher Secondary School' respectively since 1992. Both the schools run by the trustees in their individual capacities were not availing exemption u/s 11 of the Act. The receipts from students, expenses incurred and net profit was disclosed in the financials and offered to tax. It was shown to us that, for AY 2015-16, these two individual trustees had disclosed taxable profit of Rs. 1.44 crores and Rs. 1.01 crores from these two schools respectively. It was also brought to our notice that, the two propri....
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....rough unregistered deeds in favour of assessee trust had not been disputed or questioned by the Revenue. The trustees were therefore under the bonafide impression that the registration in their names were in the capacity of the trustees and that the intention was clear that, the land parcels were to be owned and used by the assessee trust alone. 10. It was shown to us that, the properties were paid for by the assessee trust and recorded as their 'Asset' in the books of accounts. It was further brought to our notice that, the trustees did not recognize or reflect these land parcels as their assets in their individual balance sheets. Further, immediately upon acquisition, the assessee trust had also constructed school over the land parcels in pursuance of their object of education. The said school land and building of the assessee trust is noted to have been recognized by the Director of School Education, Government of Tamil Nadu on 24.11.2017 and CBSE granted affiliation on 24.12.2019, both in the name of the assessee trust. When this bonafide omission was pointed out by the Ld. CIT(E), the assessee under legal advice had furnished registered will executed by the trustees affirmi....
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....generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- *************** (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person re-ferred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;" 12. A plain reading of sub-section (1) of Section 13 of the Act indicates that exemptions under Section 11/12 of the Act would not operate so as to exclude from the total income of the previous year, any income, which is directly or indirectly, utilized for the benefit of the person referred to in sub-section (3) of Section 13 of the Act. It is, thus, clear that if any part of the income of a trust for charitable or religious purposes is diverted for the direct or indirect....
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....e land belonging to one of the trustee would amount to income for the benefit of the trustee which will fall under Section 13(1)(c) of the Act unmindful of the agreement which states that in the event of the trust vacating the building in future, the trustee shall compensate the trust for the value for the building in question. De hors this agreement, there is nothing to show that there was any manner of use of application of the income or property of the Trust to the person set out in sub section 13 (1) (3) (c) of the Act. It is only when there is an application of income or any part of the property or building directly or indirectly put to use for the benefit of person referred to above, the provision will get attracted we do not find such application in the facts of the present case. We are in agreement with the decision arrived at by the Commissioner Appeals on this point." (emphasis added) 14. Having taken note of the above legal position of Section 13(1)(c) r.w. 13(2)(g) of the Act, we now revert back to the facts of the present case. The facts as noted above are that, the individual trustees of the assessee trust had transferred their respective proprietary schools alo....
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....it to them, when the facts and circumstances placed on record, shows the contrary that the impugned property beneficially belonged to the assessee trust and was all along enjoyed and used by the assessee trust and that the individual trustees did not derive any benefit therefrom. 15. When the Revenue disputed the veracity of these documents on the ground that they were not registered, it is observed that the trustees had executed a registered rectification deed on 11.04.2023 substituting their names in the property deeds with the name of the assessee trust. The assessee trust has also furnished the encumbrance certificates and mutations to show that, the land revenue records are reflecting their name and that the impugned property is clear of any encumbrance or liabilities qua the assessee or any of the trustees. These contemporaneous evidences placed on record does show that the assessee trust was in control and possession of the impugned property and enjoyed the same and not the individual trustees. Further, the facts on record shows that the trustees never derived any benefit from these properties when held in their name. The source of funds, as noted above, emanated from the....
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....the Ld. CIT(A) that, the land is the property of the trust and that the trustees had promised execution of settlement deed, as it may be required to apply for the permission to run the music school. It was accordingly observed that no benefit endures to the trustees as they have whole heartedly gifted away the land for a good cause. The Ld. CIT(A) further held that, the registration is only a legal formality and culmination point in the transfer of property. The fact that there was handing over of the possession by the owner to the recipient (buyer or donee as the case may be) for the use and exploitation the latter, it was to be treated as if the property was held by the assessee trust. The Ld. CIT(A) further took note of the fact that the registration of the gift deed also took place later on 25.03.2013 wherein it was inter alia mentioned that the gift took place on 15.03.2009. On these facts, and having regard to conduct of the assessee as well as the trustees, the Ld. CIT(A) held that provisions of Section 13(1)(c) of the Act cannot be invoked in the present case. On appeal by Revenue, this Tribunal is noted to have upheld the findings of the Ld. CIT(A) by holding as under:- ....