2017 (11) TMI 2012 - AT - Income Tax

Exemption u/s 11 - BMW car purchased in the name of the trustee whereby the funds of the trust were diverted and used for the benefit of excluded person as covered within the provision of Section 13( 1 )(c)(ii) Section 13(2)(g) r.w.s. 13(3)(cc) - HELD THAT - Tribunal has made an elaborate discussion with respect to purchase of BMW car and similar observation was made by the Revenue for Assessment Year 2009-10 2016 (2) TMI 77 - ITAT MUMBAI also and finally the appeal of the assessee was allowed directing the DIT(E) that the registration granted u/s 12AA of the Act cannot be denied to the assessee. It is also noted that the order of the Tribunal was affirmed by Hon ble High Court of Bombay vide order 2017 (7) TMI 1053 - BOMBAY HIGH COURT No contrary facts/decision were brought to our notice by either side and more specifically the Revenue therefore considering the decision of the coordinate Bench of this Tribunal and following the decision from Hon ble jurisdictional High Court we find no infirmity in the order of the Ld. Commissioner of Income Tax (Appeal) resultantly the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Contravention of provisions of Section 13 of the Income Tax Act, 1961.
2. Entitlement to exemption under Section 11 of the Income Tax Act, 1961.
3. Addition of donations received, income from other sources, and income from investments.

Issue-wise Detailed Analysis:

1. Contravention of Provisions of Section 13 of the Income Tax Act, 1961:
The Revenue contended that the purchase of a BMW car in the name of the trustee amounted to a diversion of trust funds for the benefit of an excluded person, violating Sections 13(1)(c)(ii) and 13(2)(g) read with Section 13(3)(cc) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that no logbook was produced to show that the car was used solely for the trust's work, and thus, the exemption under Section 11 was denied. The AO suggested that the trust could have purchased a less expensive car, which would be more in line with the concept of charity.

2. Entitlement to Exemption under Section 11 of the Income Tax Act, 1961:
The assessee trust argued that the car was purchased for the trust's use and was mistakenly registered in the trustee's name due to a communication gap. The trust provided evidence that the car loan was taken in the trust's name, and all related payments were made from the trust's bank account. The CIT(A) found substance in the assessee's arguments and held that there was no contravention of Section 13, as the car was used for the trust's purposes and the AO had not conducted any independent inquiries into the actual use of the vehicle. The CIT(A) relied on the Bombay High Court decision in CIT v. Dilip Singh Sardarsingh Bagga, which held that registration under the Motor Vehicles Act is not essential for the acquisition of ownership of a motor vehicle.

3. Addition of Donations Received, Income from Other Sources, and Income from Investments:
The AO made additions to the income of the trust on account of donations received, income from other sources, and income from investments, arguing that these were in violation of Section 13. The CIT(A) allowed the appeal of the assessee trust, holding that there was no contravention of Section 13 and the trust was entitled to exemption under Section 11. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue had not brought any contrary evidence to dispute the assessee's contentions. The Tribunal also referred to its earlier decision and the Bombay High Court's affirmation that the registration under Section 12AA could not be denied based on the purchase of the BMW car.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the assessee trust was entitled to exemption under Section 11 of the Income Tax Act, 1961. The Tribunal found no infirmity in the CIT(A)'s well-reasoned order and upheld the findings that there was no contravention of Section 13. The Tribunal's decision was consistent with its earlier rulings and the Bombay High Court's affirmation.