1993 (3) TMI 185 - AT - Income Tax

Charitable Or Religious Trust, Withdrawal Of Exemption, Exemption Of Income From Property Held Under

Issues Involved:
1. Applicability of Section 13(1)(bb) for the assessment years 1977-78 to 1980-81.
2. Applicability of Section 13(1)(c)(ii) for the assessment years 1978-79 to 1980-81.
3. Exemption under Section 11.
4. Excessive remuneration to the Trustee.
5. Cross objection by the assessee for the assessment year 1977-78.

Issue-wise Detailed Analysis:

1. Applicability of Section 13(1)(bb):
The primary issue was whether the income derived from running two cinemas by the assessee-trust was exempt under Section 11, considering the provisions of Section 13(1)(bb). The Income Tax Officer (ITO) argued that the trust was not entitled to exemption because the income was derived from a business activity not carried out in the course of the primary purpose of the trust. The CIT (Appeals) vacated the ITO's finding, treating the trust as a religious trust, thus exempt from the provisions of Section 13(1)(bb). The Appellate Tribunal upheld the CIT (Appeals)'s decision, agreeing that the business was settled under the trust and not acquired or initiated by the trust. The Tribunal concluded that the income derived from the cinemas was not hit by Section 13(1)(bb) as the business was originally settled under the trust.

2. Applicability of Section 13(1)(c)(ii):
For the assessment years 1978-79 to 1980-81, the ITO contended that the income and property of the trust were used for the benefit of close relatives of the trustee, thus invoking Section 13(1)(c)(ii). The CIT (Appeals) found no evidence of diversion of income or property to the relatives and held that the arrangement with M/s. Ruhee Enterprises was a commercial arrangement for managing the cinemas. The Tribunal upheld this finding, agreeing that the arrangement was purely business-oriented and did not benefit the relatives of the trustee directly or indirectly.

3. Exemption under Section 11:
The ITO's refusal to grant exemption under Section 11 was based on the misapplication of Section 13(1)(bb). Since the Tribunal found that Section 13(1)(bb) did not apply, it upheld the CIT (Appeals)'s decision to exempt the income under Section 11 for all the years in question.

4. Excessive Remuneration to the Trustee:
The ITO disallowed Rs.7,200 as excessive remuneration to the trustee, Mr. S.M. Shafiq. The CIT (Appeals) vacated this disallowance based on past Tribunal orders, which found similar disallowances unjustified. The Tribunal supported the CIT (Appeals)'s decision, dismissing the revenue's appeal on this issue.

5. Cross Objection by the Assessee for the Assessment Year 1977-78:
The cross objection raised by the assessee for the assessment year 1977-78 was found to be infructuous as the issues raised were already dealt with in the appeal filed by the revenue. Consequently, the cross objection was dismissed.

Separate Judgments by the Judges:
The learned Accountant Member disagreed with the Judicial Member's interpretation of Section 13(1)(bb) and Section 13(1)(c)(ii). He opined that the provisions of Section 13(1)(bb) applied to the trust, denying the exemption, as the cinema business was not carried out in the course of the primary purpose of the trust. He also believed that the trust's arrangement with M/s. Ruhee Enterprises indirectly benefited the trustee's relatives, invoking Section 13(1)(c)(ii).

The Third Member, P.J. Goradia, was brought in to resolve the difference. He agreed with the Accountant Member on the applicability of Section 13(1)(bb), denying the exemption. However, he sided with the Judicial Member on Section 13(1)(c)(ii), finding no evidence of income or property diversion to the trustee's relatives, thus allowing the exemption.

Conclusion:
The appeals filed by the revenue for the assessment years 1977-78 to 1980-81 were dismissed, and the cross objection filed by the assessee for the assessment year 1977-78 was also dismissed. The Tribunal upheld the CIT (Appeals)'s decision on all issues, except for the applicability of Section 13(1)(bb), where the Third Member's opinion was sought, ultimately denying the exemption for income derived from the cinema business.

← Previous Next →