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2015 (8) TMI 868 - AT - Income TaxDenial of exemption under section 11 - whether the trust has not violated the provisions of section 13(1)(c) by incurring development expenses on the land belonging to the trustees - gift of land - CIT(A) allowed exemption - Held that - As could be seen from the findings of the Commissioner of Income-tax (Appeals) that the trustees have initially gifted the land to the assessee - trust by HIBBA and which was subsequently transferred to the assessee- trust by way of gift deed dated March 25, 2013. As the land was transferred to the assessee-trust which was orally gifted earlier, the trustees are not benefitted in any way. Therefore, we are of the view that there is no violation under section 13(1)(c) of the Act. We also find from the valuation report that certain extent of land was not even in the name of the trustees. The trustees have purchased this land on April 28, 2011 which fall under the assessment year 2011-12 and this was also gifted to the trust on March 25, 2013. The findings of the Commissioner of Income-tax (Appeals) have not been rebutted by the Revenue with evidences. In the circumstances, we uphold the order of the Commissioner of Income-tax (Appeals) holding that there is no violation of the provisions of section 13(1)(c) of the Act and consequently exemption under section 11 cannot be denied. - Decided in favour of assessee.
Issues Involved:
1. Violation of Section 13(1)(c) of the Income-tax Act, 1961. 2. Denial of exemption under Section 11 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Violation of Section 13(1)(c) of the Income-tax Act, 1961: The core issue in this appeal was whether the trust violated the provisions of Section 13(1)(c) by incurring development expenses on land belonging to the trustees. The Assessing Officer (AO) observed that the trust incurred Rs. 49.84 lakhs towards development expenses on land owned by the trustees, which he deemed a violation since the property was not in the trust's name, thereby benefiting the trustees. Consequently, the AO denied exemption under Section 11 of the Act. The trust contended that the land was leased to it by the trustees with the intention of settling it in the trust's name for building a music school. The trustees later formalized this transfer through a gift deed. The Commissioner of Income-tax (Appeals) (CIT(A)) found no violation of Section 13(1)(c), noting that the land was subsequently settled in the trust's name as promised. The CIT(A) elaborated that the trust's activities, including teaching and training in music and Indian arts, are charitable under Section 2(15) of the Act. The CIT(A) referenced judicial precedents to support this view, such as the Chennai Bench of the ITAT in Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT, which recognized training in traditional art forms as educational and charitable. The CIT(A) also addressed the AO's objections regarding the gift (HIBA) under Mohammedan law, which does not require registration. The CIT(A) affirmed that the gift was valid as the trustees had handed over possession to the trust, and the subsequent registration of the gift deed further validated the transaction. The CIT(A) concluded that the developmental expenses incurred were for the trust's benefit and not for the trustees, thus outside the purview of Section 13(1)(c). 2. Denial of Exemption under Section 11 of the Income-tax Act, 1961: The AO denied the exemption under Section 11, arguing that the trust's funds were used for the trustees' benefit, violating Section 13(1)(c). However, the CIT(A) refuted this, highlighting that the trust's activities were charitable, and the land was eventually registered in the trust's name. The CIT(A) emphasized that the trust's main activities, such as conducting music classes, were charitable. The AO's observations about the lack of registration and non-reflection of the land in the balance sheet were addressed by explaining the nature of HIBA and the subsequent registration of the gift. The CIT(A) also noted that the trustees did not derive any personal benefit from the developmental expenses. The case law cited by the AO was distinguished on facts, as they involved interest-free loans or pledging of trust property, which were not applicable in this case. The CIT(A) directed the AO to grant the exemption under Section 11, as the developmental expenses were for the trust's purposes and not for the trustees' benefit. The Revenue's appeal was dismissed, upholding the CIT(A)'s order. Conclusion: The Tribunal upheld the CIT(A)'s findings, concluding that there was no violation of Section 13(1)(c) and that the trust was entitled to exemption under Section 11. The appeal by the Revenue was dismissed, affirming that the trustees were not personally benefitted and the developmental expenses were for charitable purposes.
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