2024 (4) TMI 458 - HC - Income Tax

Nature of receipt - additions to the income of the trustees by way of excess consideration received for the sale of the rubber plantation - amounts received by the assessees as consideration for relinquishment of their trusteeship - Assessing Authority and the First Appellate Authority had found that the excess sale consideration received by the said assessees was in fact amounts towards consideration paid by the Believers Church for their relinquishment of their trusteeship in the Carmel Educational Trust and was liable to be assessed in their hands, the Tribunal, in the order impugned in these appeals, found otherwise. resignation/relinquishment by the assessees of their position as trustees HELD THAT - We find ourselves unable to accept the finding of the Tribunal that the amounts received by the assessees as consideration for relinquishment of their trusteeship would qualify as a capital receipt for the purpose of the I.T. Act, and further that in the absence of any statutory provision under the I.T. Act that provides for a determination of the cost of acquisition of the asset, the capital gains cannot be assessed. A perusal of the trust deed in the instant cases does not indicate that any power was conferred on the trustees to relinquish their position as trustees en banc . Rather, as noticed by the Supreme Court in Sheikh Abdul Kayum and Others v. Mulla Alibhai and Others and Others 1962 (8) TMI 83 - SUPREME COURT a person who is appointed as trustee is not bound to accept the trust, but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the court or with the consent of the beneficiaries or by the authority of the trust deed itself. We are therefore of the view that the resignation/relinquishment by the assessees, of their position as trustees of the Carmel Educational Trust, that too for a consideration, cannot get the imprimatur of this Court. The consideration received by them for such relinquishment cannot be treated as a capital receipt for the purposes of assessing the same under the head of capital gains. The consideration will have to be treated as the individual income of the assessees and assessed accordingly under the appropriate head. We therefore set aside the said findings in the impugned order of the appellate tribunal and remand the matter back to the tribunal to pass a fresh order on this issue in the light of our findings above. Amount received by Gracy Babu and Jose Thomas from which is said to be towards the on-going construction work as mentioned in clause 5 of the agreement although the revenue strenuously argued that the Tribunal erred in not finding that the consideration received by the assessees was in fact a part of the remuneration for the relinquishment of their trusteeship in the Carmel Educational Trust, we find no evidence to support such a contention. As the Tribunal has relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees, we see no reason to interfere with the aforesaid finding of the Tribunal. Enhancement made by the CIT (A) in respect of an amount allegedly paid by the Trust to its erstwhile trustees for construction of building on behalf of the Trust - Tribunal deleted the said additions as relying on own case in relation to assessment year 2010-11 there was construction activity carried out by those two assesses as evidenced by the agreements cited supra and the construction was reflected in the balance sheet of the present assesses which was subjected to TDS. Thus, by any stretch of Imagination, it cannot be said that there was no construction activity carried out by the assesses and it cannot be said that payments were not made towards construction of building which was for the establishment of educational institution. Thus, this ground of appeals of the assessee is allowed. Accounting treatment to be accorded to the donations received by St. Thomas Education Trust, which the Department alleged was nothing but an amount received by the assessees as consideration for the relinquishment of their trusteeship in the Carmel Educational Trust - While this was the stand of the Assessing Authority, the CIT (A) found that the amount of Rs. 8 crores received as donation by St. Thomas Education Trust could not be considered as income in the hands of the above assessees who were trustees in the said St. Thomas Education Trust. This view of the CIT (A) against which the Department had preferred an appeal before the Tribunal, was upheld by the Tribunal. We also see no reason to take a different view since it is not in dispute that the payments in question were actually made to the trust and not to the trustees in their individual names.

Summary

Issues Involved:

1. Whether the trustees of a public charitable trust have a right to trusteeship and if they need to be compensated for relinquishing such right?
2. Whether the trustees are entitled to benefits other than remuneration for services rendered by them?
3. Whether the ITAT was right in deleting the addition of the amount received by the trustees as 'income from other sources'?
4. Whether agreements signed subsequent to search have any sanctity?
5. Whether mere deduction of tax at source on an amount paid is sufficient to establish that alleged service is rendered?
6. Whether payment made to erstwhile trustees without services actually rendered by them will fall outside the ambit of Sec.13?
7. Whether mere book addition in the asset side of the balance sheet is sufficient to prove that asset has actually come into being?

Summary of Judgment:

Re: I.T.A. Nos. 46/2020, 47/2020, 48/2020, 49/2020, 51/2020:

1. Trusteeship Rights and Compensation:
The Tribunal found that the consideration received by the trustees for relinquishing their trusteeship was a capital receipt and not taxable as 'income from other sources.' The Tribunal reasoned that the right of trusteeship is a capital asset, and since the cost of acquisition is nil, the gain on relinquishment is not taxable.

2. Entitlement to Benefits:
The Tribunal held that the trustees' right to trusteeship is a capital asset, and the consideration received for relinquishing it is a capital receipt. This was based on the Supreme Court's decision in CIT v. B.C. Srinivasa Shetty, which held that if the cost of acquisition of a capital asset cannot be determined, the transfer of such an asset would not attract capital gains tax.

3. Deletion of Addition by ITAT:
The Tribunal found that the amounts received by the trustees were not taxable as 'income from other sources' but as a capital receipt. The Tribunal's reasoning was based on the fact that the right to trusteeship is a capital asset, and the consideration received for relinquishing it is a capital receipt.

4. Agreements Signed Subsequent to Search:
The Tribunal found that the agreements signed subsequent to the search were valid and had sanctity. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

5. Mere Deduction of Tax at Source:
The Tribunal held that the deduction of tax at source on an amount paid is sufficient to establish that the alleged service is rendered. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

6. Payment Made Without Services Rendered:
The Tribunal found that the payments made to the erstwhile trustees were for the construction of buildings and not for relinquishment of trusteeship. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

7. Book Addition in Asset Side of Balance Sheet:
The Tribunal found that the book addition in the asset side of the balance sheet was sufficient to prove that the asset had actually come into being. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

Re: I.T.A. No. 6/2021:

1. Sanctity of Agreements Signed Subsequent to Search:
The Tribunal found that the agreements signed subsequent to the search were valid and had sanctity. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

2. Mere Deduction of Tax at Source:
The Tribunal held that the deduction of tax at source on an amount paid is sufficient to establish that the alleged service is rendered. The Tribunal relied on the audited balance sheet of the Believers Church and the TDS payments made to the Department in relation to the payments made to the assessees.

3. Payment Made Without Services Rendered:
The Tribunal found that the payments made to the erstwhile trustees were for the construction of buildings and not for relinquishment of trusteeship. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

4. Book Addition in Asset Side of Balance Sheet:
The Tribunal found that the book addition in the asset side of the balance sheet was sufficient to prove that the asset had actually come into being. The Tribunal relied on the agreements and the audited balance sheet of the Believers Church.

Re: I.T.A. Nos. 54/2020, 55/2020, 56/2020, 68/2020:

1. Deletion of Addition of Rs. 8 Crores Each:
The Tribunal found that the amount of Rs. 8 crores received as donation by St. Thomas Education Trust could not be considered as income in the hands of the trustees. The Tribunal upheld the CIT (A)'s view that the payments in question were made to the trust and not to the trustees in their individual names.

Conclusion:

1. I.T.A. Nos. 54/2020, 55/2020, 56/2020, 68/2020 and 6/2021 are dismissed, answering the substantial questions of law against the revenue and in favor of the assessee.
2. I.T.A. Nos. 46/2020, 48/2020, 49/2020, and 51/2020 are partly allowed by way of remand. The substantial questions of law, other than those remanded, are answered against the revenue and in favor of the assessee.
3. I.T.A. No. 47/2020 is allowed by way of remand on the specified questions.