2014 (7) TMI 562 - HC - Income Tax

Property purchased in representative capacity - Immovable property purchased and funds illegally diverted for private use or not - Held that - Sale consideration and stamp duty was paid from the funds of the Society and entire expenses incurred are reflected in the statement maintained by the Society and in view of the statement made by Shri G.C. Suyal that he has not purchased property for his personal use rather it has been purchased for the Society for the establishment of new school of the Society thus, it must be held that name of Shri G.C. Suyal appears in the sale deed in a representative capacity, being President of the Society, and property belongs to the Society - Society is earning income from the purpose of the profit and also Society/Institution is doing any business thus, the order is set aside Decided in favour of Assessee.

Issues:
1. Rejection of exemptions under Section 10 (23C) (vi) of the Income Tax Act based on the purchase of immovable property in the name of an individual using society funds.
2. Allegation of illegal diversion of society funds for private use.
3. Validity of the explanation provided regarding the purchase of property in the name of an individual.
4. Determination of ownership of the purchased property and its purpose.
5. Justification of the impugned orders and their compliance with the law.

Analysis:
1. The judgment addresses the rejection of exemptions under Section 10 (23C) (vi) of the Income Tax Act due to the purchase of immovable property in an individual's name using society funds. The court notes that the property was acquired for establishing another school of the society, as explained by the President of the Society. The funds for the purchase were sourced from the petitioner Society, and all expenses were duly recorded. The court finds no reason to doubt the President's statement that the property was bought for the society's benefit, not for personal use, indicating a representative capacity.

2. The court examines the allegation of illegal diversion of society funds for private use. It highlights that the Society is authorized to run an educational institution and that the purchase of the property was intended for expanding the educational infrastructure. The court emphasizes that there is no indication that the Society is engaged in profit-making activities or business, thereby questioning the basis for alleging illegal diversion of funds for personal use.

3. The judgment evaluates the validity of the explanation provided regarding the purchase of property in the individual's name. The court acknowledges that a notice was issued to the President of the Society to clarify the circumstances of the property purchase. The President's response, stating that the property was acquired for the society's new school and not for personal gain, is deemed credible based on the financial records and the absence of contradictory evidence.

4. Regarding the determination of ownership of the purchased property and its purpose, the court affirms that the property belongs to the Society, considering that the purchase was made using society funds, and the President acted in a representative capacity. The court emphasizes that the property was acquired for the society's benefit and not for personal use, reinforcing the conclusion that the property rightfully belongs to the Society.

5. The judgment concludes by declaring the impugned orders unjustified and arbitrary, directing the authorities to reconsider the applications of the petitioners in light of the court's observations within a specified timeframe. No costs are awarded in the case due to the peculiar circumstances. The decision highlights the importance of ensuring compliance with legal provisions and justifying administrative actions in accordance with the law.

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