2015 (11) TMI 288 - AT - Income Tax

Exemption under Section 11 denied - as per AO diversion of fund to the private limited companies for construction of a meditation hall by two private companies would amount to diversion of fund other than the object of the trusts - Held that - The moment Shri V. Vijaykumar relinquished his trusteeship, it cannot be said that Shri V. Vijaykumar s son and daughter-in-law are interested persons in the trusts. Therefore, this Tribunal is of the considered opinion that there is no violation of Section 13(1)(d) of the Act. It is not in dispute that the entire corpus donation and other donations were used for the construction of meditation hall at Varadalapalam Mandal. Therefore, even if the claim of the assessees with regard to receipt of corpus donation is disbelieved, then the so-called donation has to be treated as income of the assessee and it is to be allowed as application for creating infrastructure. Since admittedly the donations were used for construction of meditation hall, this Tribunal is of the considered opinion that the entire income has to be held as application of income. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. The fact that the meditation hall was handed over to the assessee-trusts is not in dispute. The property tax assessment by local body also stands in the name of two assessee-trusts. Therefore, this Tribunal is of the considered opinion that when the two companies constructed the meditation hall and handed over the same to the assessee-trusts and the property tax assessment stands in the name of assessee-trusts, the assessees are the owners of the property under the provisions of Income-tax Act. Under the Indian law, a land can belong to one person and the building can be owned by other person. In the case before us, the land in which the meditation hall was constructed belongs to a different person, but the building was constructed by the two companies on the funds advanced by the assessee-trusts. After construction, the building was handed over to the assessee-trusts. Therefore, there was transfer of property within the meaning of Section 2(47) of the Act. Under the common law, registration of document is required when the property value exceeds more than ₹ 100/-. However, under Section 2(47) of the Act, registration of the document is not mandatory. When the physical possession of the building is handed over to the assessee-trusts and allowed the assessee-trusts to enjoy the same, this Tribunal is of the considered opinion that the assessee-trusts became the owners of the meditation hall. Therefore, for all practical purpose, the assessee-trusts become the owner of the meditation hall constructed by the two companies on the funds advanced by the assessee-trusts. The treatment of the assessee in the accounts of the companies or trusts cannot override the provisions of Income-tax Act. In other words, the provisions of Income-tax Act would prevail over the treatment of the assessee in the accounts. Therefore, this Tribunal is of the considered opinion that there is no violation of any of the provisions of Sections 11, 12 & 13 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing appeals.
2. Exemption under Section 11 of the Income-tax Act.
3. Violation of Section 13(1)(d) of the Income-tax Act.
4. Ownership and application of funds for construction of meditation hall.
5. Treatment of corpus donations.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Revenue filed appeals with a delay of 23 days. The Tribunal found sufficient cause for the delay and condoned it, admitting the appeals.

2. Exemption under Section 11 of the Income-tax Act:
The Revenue argued that the assessees, registered as charitable institutions under Section 12AA, claimed corpus donations which were added to the Capital Fund. The Assessing Officer treated these donations as income due to lack of donor details and evidence of fund application for charitable purposes. The Tribunal, however, noted that the entire corpus donation and other donations were used for constructing a meditation hall, thus qualifying as application of income under Section 11.

3. Violation of Section 13(1)(d) of the Income-tax Act:
The Revenue contended that funds were diverted to private companies, violating Section 13(1)(d). The Tribunal observed that the funds were advanced to companies owned by relatives of a former trustee, who had relinquished his position in 1991. Therefore, there was no violation of Section 13(1)(d) as the relatives were not considered interested persons.

4. Ownership and Application of Funds for Construction of Meditation Hall:
The Revenue claimed that the meditation hall was an asset of the companies, not the trusts. The Tribunal found that the hall, constructed with the assessees' funds and handed over to them, was assessed for property tax in the trusts' names. Under Section 2(47) of the Act, the trusts were deemed the owners of the hall, and the expenditure was treated as infrastructural development in line with the trusts' objectives.

5. Treatment of Corpus Donations:
The assessees claimed to have received corpus donations with specific directions for constructing the meditation hall. Although complete donor details were not furnished, the Tribunal noted that the funds were used for the hall's construction. Even if treated as income, it was applied for creating infrastructure, thus supporting the trusts' exemption claim under Section 11.

Conclusion:
The Tribunal dismissed the Revenue's appeals, confirming the CIT(Appeals)' decisions. It upheld that there was no violation of Sections 11, 12, and 13 of the Act, and the assessees' application of funds for constructing the meditation hall was in furtherance of their charitable objectives.

Order Pronounced:
The judgment was pronounced on 1st October 2015 at Chennai.

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