2015 (9) TMI 375 - AT - Income Tax

Exemption under section 11 denied - car purchased in the exclusive name of a trustee - Held that - Admittedly, the assessee trust had not received any compensation in the year under consideration. The learned Judicial Member stated that while analysing the nature of the provision, particularly the quantum of compensation, should be tested/appreciated in a subjective manner . With due regards, provisions of the Act have to be analysed and understood keeping in mind the object of the Legislature and it should not be interpreted subjectively. In the instant case the language of section 13(2)(b)/13(3) does not give any discretion to the AO to give any other interpretation to the words made available for use . In considered opinion if a car is purchased in the exclusive name of a trustee, who has complete control over the car and had no personal car of his own, in the absence of any resolution passed by the trust in writing, it has to be assumed that it was made available for use of the trustee irrespective of whether it was actually used or not. On a conspectus of the matter, there is violation of provisions of section 13(2)(b) r.w.s. 13(3) of the Act. Denial of exemption under section 11 should be limited to the amount which was diverted (in the instant case the car was purchased in the name of the prohibited person) in violation of section 13(2)(b) of the Act. With this observation the points of difference are answered as under - (i) The car can be held as made available for the use of the trustee. (ii) Made available for use include deemed use/applied for the benefit of the trustee , with or without actual use for personal benefit of the trustee. (iii) The act of the assessee falls within the ambit of section 13(2)(b) of the act. (iv) Denial of benefits of section 11 deserves to be restricted to such income of the trust which is used/applied directly or indirectly; in the instance case the car was purchased in the name of a prohibited person by applying the funds of the trust.

Issues Involved:
1. Whether the property of the trust (car) was "made available" for the use of the trustee under section 13(3) of the Income Tax Act, 1961.
2. Whether the expression "made available" for the use of the trustee implies deemed use or application for the benefit of the trustee under section 13(2) of the Income Tax Act, 1961.
3. Whether the case of the assessee falls within the ambit of the provisions of clause (b) of section 13(2) of the Income Tax Act, 1961.
4. If the above questions are affirmative, whether the denial of benefits of section 11 should be restricted to the income used or applied for the benefit of the trustee, or the total income of the trust should be denied benefits under section 11.

Issue-wise Detailed Analysis:

1. Property "Made Available" for the Use of Trustee:
The trust purchased a car in the name of a trustee using the trust's funds. The Assessing Officer (AO) concluded that the car was purchased for the personal benefit of the trustee, thus invoking provisions of section 13 of the Income Tax Act. The CIT(A) affirmed the AO's decision, stating that the car's purchase in the trustee's name was enough to deny exemption under section 11. The Tribunal debated whether the car was "made available" for the trustee's use, considering affidavits and logbooks provided by the assessee to prove the car's official use.

2. Expression "Made Available" and Deemed Use:
The Accountant Member interpreted section 13(2)(b) to mean that if the car is purchased in the trustee's name, it is "made available" for their use, regardless of actual personal use. The Judicial Member disagreed, stating that the Revenue must prove personal use by the trustee. The Judicial Member emphasized a "subjective test" for determining adequacy of rent or compensation. The Third Member agreed with the Accountant Member, stating that the car's purchase in the trustee's name and lack of personal vehicle implies it was "made available" for personal use.

3. Ambit of Section 13(2)(b):
The Accountant Member and the Third Member concluded that the car's purchase in the trustee's name without charging rent or compensation violated section 13(2)(b). The Judicial Member argued that the Revenue should prove exclusive personal use. The Third Member emphasized that "made available" does not require exclusive or enduring benefit, and the car's purchase in the trustee's name suffices to attract section 13(2)(b).

4. Denial of Benefits under Section 11:
The Accountant Member suggested that denial of exemption should apply to the entire income if any part was used for personal benefit. The Judicial Member and the Third Member agreed that denial should be limited to the amount used for personal benefit. The Third Member cited the Supreme Court's decision in Fr. Mullers Charitable Institution, affirming that only the income or property used in violation should be taxed, not the entire income.

Conclusion:
The Third Member agreed with the Accountant Member on the interpretation of "made available" and the applicability of section 13(2)(b). However, the denial of exemption under section 11 should be limited to the amount used for the trustee's benefit, aligning with the Judicial Member's view and the Supreme Court's decision in Fr. Mullers Charitable Institution. The matter was directed to be listed before the Division Bench for orders in accordance with the majority view.

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