2020 (9) TMI 1266 - AT - Income Tax

Exemption u/s 11 - benefit of exemption claimed by the assessee u/s 11 and 12 disallowed by AO following the assessments made in the assessee s own case for the earlier years wherein the exemption claimed was disallowed for allegedly violating the provisions of section 13(1)(c) - HELD THAT - Section 13(1)(c)(ii) show that in case any income or property of the trust is used either directly or indirectly for the benefit of trustee or any person referred to sub-section (3) of section 13 the benefits granted to the trust u/s. 11 shall be forfeited. However the first proviso to section 13(1)(c) provides an exception. According to first proviso benefit derived by the trustee or the person mentioned in sub-section (3) shall not debar the trust from availing the benefit of section 11 and 12 if (i) the trust is created or established prior to the commencement of the Act; and (ii) the benefit extended to the trustee or the person referred to in sub-section (3) is in compliance with the mandatory terms of the trust. In the present case the assessee has placed on record a copy of the Trust Deed at pages 40 to 48 of the paper book. The Trust Deed is in Marathi language. The English translation of the Trust Deed is at pages 49 to 53 of the paper book. A perusal of the trust deed shows that the trust was created in the year 1930 i.e. much prior to the enactment of Income Tax Act 1962. Thus the first condition to fall within the scope of proviso to section 13(1)(c)(ii) of the Act is satisfied. Benefit to be granted to the assessee or the person referred to in sub-section (3) in application or uses of the property or income of trust is concerned the use or application of the property should be in compliance of the mandatory terms of the trust - From perusal of English translation of the Trust Deed it appears that the trustees were in possession of the residential part of the property on second floor. As per the assertions of ld. AR the legal heirs of the author of the trust were in possession of part of property on ground floor as well. Admittedly there is a clear mandate in the trust deed that part of the property which is in possession of author of the trust shall be for the sole purpose of occupancy by the author of the trust or his legal heirs. The part of the property which is subject matter of dispute are 3 shops on ground floor of the building. From the perusal of English translation of Trust Deed the details of the property in possession of the author of the trust at the time of execution of Trust Deed is not discernible. Under such circumstances we are of considered opinion that this issue needs a re-visit to the Assessing Officer. Representative of both the sides concur on the point that the part of property referred to in the Trust Deed has to be clearly identified. AO is directed to ascertain the part of property which was in the possession of author of the trust at the time of execution of the trust in the year 1930 qua which mandate has been given for the exclusive use by the author of the trust and his legal heirs. In case the shops under question are part of the property which was in possession of the author of the trust deed at the time of execution then the assessee clearly falls within the exception as mentioned in proviso to section 13(1)(c)(ii) of the Act. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2010-11 and A.Y. 2011-12 we respectfully follow the order of the Tribunal for A.Y. 2010-11 and A.Y. 2011- 12 and restore this issue to the file of the Assessing Officer for deciding the same afresh as per the same direction as given.

Summary

Issues:
1. Exemption under section 11 denial
2. Violation of provisions of section 13(1)(c)(ii)
3. Trust deed compliance assessment

Analysis:
1. The Revenue filed an appeal against the order of the ld. CIT(A) allowing exemption under section 11 to the assessee. The Revenue contended that the exemption was erroneously granted and not in accordance with the law. The Revenue argued that the provisions of section 13(1)(c)(ii) were violated, leading to the denial of exemption under section 11. The Revenue highlighted that the second proviso to section 13(1)(c)(ii) mandates the denial of exemption if the trustees enjoy benefits beyond the specified date. The Revenue emphasized the importance of complying with the law post the amendment in 1970 to prevent misuse of exemptions.

2. The assessee, an educational trust, claimed exemption under sections 11 and 12 of the Income Tax Act, 1961, in its return of income for the relevant year. The Assessing Officer disallowed the exemption based on previous assessments where violations of section 13(1)(c) were observed. On appeal, the ld. CIT(A) directed the allowance of the exemption following a precedent in the assessee's favor for A.Y. 2011-12. The Tribunal noted a similar issue in prior years and referred to the provisions of section 13(1)(c)(ii) regarding the use of trust income for the benefit of certain individuals.

3. The Tribunal examined the Trust Deed to determine compliance with the mandatory terms of the trust. The Trust was established before the Income Tax Act, 1962, and the first condition for exemption under the proviso to section 13(1)(c)(ii) was met. However, the Tribunal found ambiguity regarding the property usage and directed the Assessing Officer to identify the specific property part in compliance with the Trust Deed. The Tribunal emphasized the need for clarity on property possession to ascertain if the assessee fell within the exception provided in the law. An alternate plea by the assessee to limit the addition based on violations of sections 13(1)(c)(ii) and 13(2)(b) was also considered, citing a previous Tribunal decision.

In conclusion, the Tribunal upheld the Revenue's appeal for statistical purposes, based on the similarity of issues with previous years. The matter was remanded to the Assessing Officer for a fresh decision in line with the Tribunal's directions, as per the order dated 28.06.2017 for A.Y. 2010-11 and A.Y. 2011-12.