2013 (12) TMI 1002 - AT - Income Tax

Exemption u/s 11 Held that - The amounts were donated to three trusts, viz. Vivekananda Charitable Trust, Cochin Child Foundation and Bethel Educational & Charitable Trust are given to interested persons of the respective trust. In the case of Vivekananda Charitable Trust, the property was taken on lease for running a school. Vivekananda Charitable Trust has also paid franchise deposit for setting up of a school - The deposit and rent paid to lessor for taking the premises on lease was not higher than the market rent. Donation made to Cochin Child Foundation was initially deposited in the commercial space - Principles of law states that when the charitable trust utilises the funds for construction of kalyana mandapam and used the income from kalyana mandapam for charitable activity it would amount to utilisation of funds - Cochin Child Foundation has commercial space for augumenting its income so that the charitable activity can be carried out continuously. Donation to Bethel Educational & Charitable Trust was uitlised for purchase of land from trustees within the Piravom town and the land purchased from outsiders are 5 kms away from Piravom town - It is common knowledge that the land which is situated in town would cost more than the land which is situated 5 kms away from the town - The payment of sale consideration is as per the prevailing market rate and, no benefit was shown to any of the interested person Decided against Revenue. Valuation of property Held that - The fair rent is not a static figure. It may vary depending upon various factors such as the locality of the land, urgency to sell the land, necessity of the purchaser to purchase the land, access to the road, railway station, airport, distance between the land and the public infrastructure facilities available around the area, etc. need to be considered - The land was situated around bypass area. The CIT(A), after taking into consideration that the Cochin bypass road was fully developed during 1976, fixed the fair market value as on 01-04-1981 at Rs.5,000 Decided against assessee.

Summary

Issues involved:
Denial of exemption u/s 11 of the Income-tax Act on the ground of violation of section 13(1)(c) by recipient trusts. Fixing fair market value as on 01-04-1981.

Analysis:
1. The revenue appealed against the order of the CIT(A)-II, Kochi regarding denial of exemption u/s 11 for assessment year 2009-10. The appellant argued that the taxpayer, a charitable trust, violated section 13(1)(c) by donating funds to trusts engaging in non-charitable activities.

2. The appellant contended that Vivekananda Charitable Trust misused funds by paying a trustee for lease deposits, violating section 13(1)(c). Similarly, Bethel Educational & Charitable Trust overpaid trustees for property purchases, breaching section 13(3). Cochin Child Foundation invested funds in a commercial venture, contravening section 13(1)(c).

3. The respondent argued that the donated funds were used for charitable purposes by the recipient trusts, all registered u/s 12AA. They claimed that any violations by the recipient trusts should not affect the taxpayer's exemption eligibility under section 11.

4. The Tribunal found that the recipient trusts were registered charities and upheld the taxpayer's exemption eligibility. It noted that Vivekananda Charitable Trust's lease payments were reasonable, and Cochin Child Foundation's commercial investment aimed to generate income for charity.

5. Regarding Bethel Educational & Charitable Trust, the Tribunal accepted that the land purchases were at market rates, with properties near the school site understandably priced higher. The Tribunal confirmed the lower authority's decision.

6. The Tribunal dismissed the revenue's appeal and the taxpayer's cross objection. It upheld the fair market value fixed by the CIT(A) as on 01-04-1981, considering factors like location and infrastructure development. The decision was pronounced on 22.3.2013.

This detailed analysis of the judgment highlights the issues, arguments presented by both parties, and the Tribunal's reasoning leading to the final decision.