PURCHASE OF JAGUAR CAR FOR THE MANAGING TRUSTEE – A CHARITABLE ACTIVITY?

[DR.MARIAPPAN GOVINDARAJAN]

In SRI KARPAGA VINAYAGAR EDUCATIONAL AND CHARITABLE TRUST VERSUS THE INCOME TAX OFFICER, EXEMPTIONS WARD, MADURAI - 2024 (8) TMI 746 - ITAT CHENNAI, the appellant is a trust. The objects of the appellant trust are education, relief to poor etc. The appellant filed the income tax return for the assessment year 2016-17 declaring NIL amount. The case of the appellant was selected for scrutiny by the Department. The Department issued notices under Section 143(2) and 142 (1) of the Income Tax Act, 1961 (‘Act’ for short) to the appellant. The appellant uploaded the details as required by the Department portal.

The expenses of the appellant were examined by the Department. The Assessing Officer found that a jaguar XF 3.0 L was purchased in the name of the Managing Trustee. The cost of the car is Rs.62.69 lakhs. The new car purchased is accounted for in the books of our trust and is shown as an asset in the Balance sheet as at 31.03.2016. The Assessing Officer issued show-cause notice to the appellant asking to explain why violation under section 13(1)(c) of the Act should not be quantified and exemption under section 11 & 12 of the Act should not be denied. The appellant gave explanation to the query. The appellant contended the following-

• The new car purchased is accounted for in the books of the trust and is shown as an asset in the Balance sheet as at 31.03.2016.
• The trust had taken a loan from ICIC Bank  Limited, Palani Branch for which S. Jayalakshmi and our Trust are applicant and co-applicant respectively.
• The Loan repayments to the Bank are duly accounted for in the books of our Trust.
• All expenses in relation to the new car such as driver salary, fuel, maintenance/ repairs etc. are duly accounted for in the accounts of the trust.

Being not satisfied with the reply the Assessing Officer denied the exemption to the tune the said amount of Rs.62.69 lakhs.

The appellant was clearly asked, vide notice dated 01.11.2023, to give details of the savings made following this methodology. The appellant was asked to file a copy of the resolution passed regarding the luxury vehicle being purchased in the name of the trustee.  The appellant was also asked a pointed question vide notice dated 01/11/2023 as to why these vehicle related expenses should not be clubbed along with the cost of the car and taxed at the maximum marginal rate. There was no response from the appellant.

The Assessing Officer held that the objects of the appellant trusts are carrying out of charitable activities like education, relief to poor etc.  The fund collected for these charitable purposes was utilized for the enjoyment of trustees by means of purchase of luxuries car "Jaguar XF 3.0 L Premium Luxury" in the name of the managing trustee is a clear violation under section 13(1)(c) of the Act. it is the worst kind of misuse of funds collected for the purpose of charity, where a luxury asset is bought in the name of a trustee and all related expenses are also paid for by the trust, especially since it is nowhere proved by the appellant as to what use this asset was put to by the trust in the work of the trust and for the purposes for which the trust has been set up.

Being aggrieved against the order of the Assessing Officer, the appellant filed an appeal before the Commissioner of Income Tax (Appeals). The appellant put forth the submissions which were submitted before the Assessing Officer. The Commissioner of Income Tax (Appeals) requested the appellant to file a response to the queries which ware reproduced in page 6 of the impugned order. There was no response from the appellant. Therefore, the Commissioner of Income Tax (Appeals) confirmed the order passed by the Assessing Officer.  The appellant raised various grounds in the appeal.

The appellant contended the following before Commissioner of Income Tax (Appeals)-

• The car was purchased in the name of the managing trustee with the sole objective of saving considerable amount of road tax and insurance.
• The Assessing Officer has failed to note that the car loans and all other related expenses or accounted for in the books of the appellant and therefore it is the real and effective owner of the asset.

The Commissioner of Income Tax (Appeals) directed the Assessing Officer to further disallow all the related expenses, loan repayments, driver salary, fuel and maintenance and enhance the income of the appellant accordingly.

The appellant, being aggrieved against the order of the Commissioner of Income Tax (Appeals) filed the present appeal before ITAT. The appellant reiterated the stands taken before the Assessing Officer and the Commissioner of Income Tax (Appeals).

The ITAT asked for the log book for verification to find out as to whether the said vehicle was used for purpose of appellant’s activities. The appellant could not produce any thing to support its contention that the vehicle was used for the charitable trust activities.  The appellant contended that the log book of the vehicle was filed before the Assessing Officer/ Commissioner of Income Tax (Appeals). The same was not accepted by the ITAT. The ITAT held that a mere statement cannot be taken into consideration without there being any corroborative evidence.

The ITAT completely agreed with the findings of the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the appellant.