2009 (6) TMI 333 - HC - Income Tax

Exemption u/s 10(22) denied - misutilisation of funds - remuneration paid to the wife and children of the managing trustee of the trust and the electricity bills towards his residence - Tribunal held that exemption u/s 10(22) cannot be denied on the basis of the provisions of section 13(2B)(sic) of the Act ? - misuse of funds by managing trustee of the trust income of trust were utilized personally by Managing Trustee - HELD THAT - Payments have been made to the chairman and managing trustee and the legal advisor of the trust and the family members to purchase dental equipments and towards electricity charges of chairman's house. The undisputed fact of appointment of family members to the important posts of the trust and payment of remuneration to them is also clearly extracted. The payment made is out of unexplained income of the assessee. The agreement of sale and the sale deed and payments made are in the name of Sri Sadashivan, chairman-cum-managing trustee of the trust and not in the name of the trust. Therefore, the said findings of the AO are in respect of misappropriation and misutilisation of the funds of the trust As finding of the AO based on material evidence is set aside by the Tribunal without adverting to each one of the items independently by applying its mind to the undisputed facts and the material evidence available on the file of the Assessing Officer and the documents, which are impounded from the office of the trustee and without assigning valid and proper reasons. The documentary evidence would clearly go to show that the receipts which are in the name of the trust and donation collected amounts to profit-making motive and it cannot be the object or the purpose of running a charitable educational institution for which the statutory benefit under section 10(22) of the Act is claimed. Therefore, the substantial questions of law 13 and 14 would certainly arise in this appeal and we answer the same in favour of the Revenue.

Summary

In the High Court of Karnataka, the appellant challenged the Income-tax Appellate Tribunal's order from July 31, 2003, regarding the assessment year 1997-98. The key questions revolved around whether the appellant was entitled to exemption under section 10(22) of the Income-tax Act. The appellant's counsel argued that the Tribunal erred in holding that certain payments were not misutilization of funds and that the trust was operated for profit rather than education. The respondent's counsel defended the Tribunal's findings, emphasizing the trust's legitimate activities and the validity of property transactions.

The court examined the Assessing Officer's assessment order and affirmed the findings of misappropriation and misutilization of funds. The Tribunal's decision was overturned as it failed to properly consider the evidence and facts presented by the Assessing Officer. The court ruled in favor of the Revenue, concluding that the trust's activities did not align with the charitable purposes required for exemption under section 10(22). The decision was based on the substantial questions of law raised in the appeal. The judgment allowed the appeal, setting aside the Tribunal's order.