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TMI Blog2020 (8) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... of said land. The said land is incorporated in the Balance Sheet on asset side as Leasehold Land -₹ 4,00,00,000/- and an amount of ₹ 4,00,00,000/- was borrowed by assesee from UBI in September, 2015, which was later transferred to bank account of Mrs. Mercy Latha in the first week of October 2015. As per Sale deed dated 28.10.2015, the land was acquired for ₹ 3,50,00,000/- by Mrs. Mercy Latha , while Mrs. Mercy Latha has got transferred ₹ 4,00,00,000/- from assessee-trust and the said land is capitalized at ₹ 4,00,00,000/- in the books of accounts of assessee-trust. The differential of ₹ 50,00,000/- retained by Mrs. Mercy Latha was not explained by the assessee-trust neither the same was enquired by authorities below in first round of litigation and whether the said differential leads to benefit of ₹ 50 lacs derived by Mrs. Mercy Latha as the said amount was not refunded by Mrs. Mercy Latha to the assessee-trust, as is emerging from records. This aspect also need to be carefully enquired by the AO and assessee is directed to place on record before the AO, complete explanation of differential amount of ₹ 50 lacs retained by Mrs. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals)-17, Chennai (hereinafter called the CIT(A) ), in ITA No.275/CIT(A)-17/2018-19 for assessment Year (ay) 2016-17, the appellate proceedings before learned CIT(A) had arisen from assessment order dated 14/12/2018 passed by learned Assessing Officer (hereinafter called the AO ) u/s.143(3) of the Income-tax Act, 1961 (hereinafter called the Act ). The appellate proceedings are conducted by Income-Tax Appellate Tribunal, Chennai Bench A , Chennai through Virtual Court via videoconferencing using webex platform. 2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called the Tribunal ) read as under:- 1. The Learned Commissioner of Income Tax (Appeals) has failed to consider that the property which was acquired by utilising the loan availed from the bank by the Appellant being Trust Property, is the property of the Appellant Trust and hence the question of any benefit arising to Trustee by virtue of Section 13(1)(c) and the consequent rejection of exemption under Section 11 does not arise. 2. The Learned Commissioner of Income Tax (Appeals) has failed to consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assesse-trust was registered u/s.12AA of the Income Tax Act, 1961. It filed its return of income for ay: 2016-17 on 31.03.2017 admitting total income of Rs. NIL. The said return of income was revised on 30.03.2018. During the course of assessment proceedings conducted by AO u/s.143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the assessee-trust has claimed an interest of ₹ 24,95,992/- paid on building loan. The AO observed that under the Liability Side of the Balance Sheet under the heading Secured Loan , an amount of ₹ 4 Crores was shown as Bank Loan UBI and on the asset side an amount of ₹ 4 Crores was shown as Leasehold Land . The assessee submitted before the AO during the course of assessment proceedings that the assessee-trust availed a loan of ₹ 4 Crores from Union Bank of India, SME Branch, Guindy, Chennai and given the said amount towards Leasehold of the Land . The AO observed from the documents furnished during the course of assessment proceedings that the assessee has obtained loan of ₹ 4 Crores from Union Bank of India in September, 2015 which was transferred to Smt. Mercy Latha, Managing Trustee of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KVB Account of Smt. Mercy Latha - Managing Trustee 1,65,00,000 3.2 The Mrs. Mercy Latha, Managing Trustee after purchasing aforesaid immovable property in October, 2015 , leased the same to assessee-trust for a period of three years vide lease deed dated 22.12.2015, free of rent. The AO observed that entry made in the Balance Sheet of assessee-trust that an amount of ₹ 4 Crores was given towards Leasehold of Land is not correct and not acceptable as the immovable property was registered in the name of Managing Trustee, Mrs Mercy Latha and not registered in the name the assessee-trust. The AO further observed that the assessee is paying interest and principal loan account to the Bank. Thus, the AO observed that it is mis-utilization of the trust funds by the Trustee for purchase of immovable property in her name. Since, the funds of the assessee-trust were diverted to Managing Trustee for purchase of immovable property in the name of Managing Trustee , the AO invoked provisions of Sec.13(1)(c) r.w.s.13(2) of the 1961 Act and held that the funds of Trust has been diverted and utilized by Smt. Mercy Latha, Managing Trustee for purchase of imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust, it should not be concluded that there is a diversion of funds of the trust by the trustee which does not violate provisions of Section 13(1)(c) of the 1961 Act, was not accepted by the AO. Further, the contention of the assessee before the AO that the said property is duly reflected in the Balance Sheet of the Trust as on 31.03.2016 onwards was also rejected by AO as the said property is incorporated in the books of accounts of the assessee-trust as Leasehold Land and not as an immovable property by way of additions to Fixed Assets. The AO observed that assessee has not incorporated the said land in its books of accounts as fixed assets and assessee cannot claim ownership of the said property. Thus, the AO rejected contentions of the assessee. The AO relied upon decision of co-ordinate Bench of this Tribunal in the case of DDIT (E)-III, Chennai v. Paramasiva Naidu Muthuvel Raj Educational Trust , wherein tribunal upheld order passed by AO denying assessee exemption u/s 11 owing to violation of Section 13(1)(c) and 13(1)(d) of the 1961 Act. The AO also relied upon decision of Hon ble Supreme Court in the case of CIT v. Dawoodi Bohra Jamat reported in 364 ITR 31(SC) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant contested as under: 2.1 The Learned AO ought to have appreciated the entire factual scenario considering the future expansion plans of the trust. 2.2 The learned AO has grossly erred on the facts and circumstances of the case in treating the purchase of land in the name of the managing trustee as misappropriation of funds and disallowed the exemption claimed under section 11 of the Act. 2.3 The Learned AO has erred in invoking the provisions of Section 13(1)(c) of the Act without a holistic understanding of the facts of the case . 6.3 In the written submission, the appellant contested that the trust had obtained term loan based on the collateral security and the personal guarantee provided by the Managing Trustee in her personal capacity and hence the source of funds transferred to the Managing Trustee was neither the income of the Trust nor utilising the property of the Trust and hence section 13(l)(c) is not applicable. 6.4 As per Circular No, 100 dated 24th January, 1973 of CBDT - repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of provisions contained in section 13(1)(c) and 13(2)(a). The Hon'ble High Court of Allahabad held - The Assessing Officer has rightly concluded that the appellant has given interest free loan to V in violation of the provisions of section 13(1)(c) and without any adequate surety in violation of section 13(2)(a). The Assessing Officer has rightly denied the exemption to the assessee under section 11. 6.6.2 In [2008] 171 Taxman 134 (Delhi) Kanahya Lal Punj Charitable Trust vs Director of Income-tax (Exemption) - Assessee-trust had advanced huge amounts to a company 'P , which had substantial interest in trust, without any security and adequate interest. The Hon'ble High Court of Delhi held - Act is intended to eliminate any possibility of trust's funds being used for benefit of any interested party and since in instant case, a benefit had directly or indirectly reached interested person namely, 'P , there was a clear violation of sections 13(1)(c) and 13(2)(a). Therefore, provisions of sections 11 and 12 would not operate so as to exclude income of trust from total income of previous year and, consequently, all receipts of trust either by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r name. Thus the trust did not utilize the bank loan for the purposes of the Trust. Thus the interest on the bank loan was not utilized wholly and exclusively for the purpose of earning the income of the trust. Hence the disallowance of interest on bank loan is upheld. 4.2 Since the assessee was assessed as AOP, the AO allowed depreciation on the capital assets which were purchased during the year as in earlier years as per AO, the assessee had already claimed entire amount of capital expenditure as deduction while computing income of the assessee. The assessee being aggrieved submitted before Ld.CIT(A) that assessee has not claimed any depreciation on capital assets during the year under consideration. The Ld.CIT(A) rejected contention of the assessee and upheld assessment order passed by the AO and allowed depreciation on the capital asset acquired during previous year relevant to ay: 2016-17. Further, assessee was aggrieved by bringing into tax , expenses which were held to be not connected to earning of an income and since exemption u/s 11 was denied, the following expenses stood disallowed by both AO as well learned CIT(A) who upheld assessment order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid lease, a fresh lease deed was executed and registered by Mrs. Mercy Latha , Managing Trustee in March 2020 in favour of the assessee-trust for a period of 33 years on a nominal rent of ₹ 1500 per month, effective from 27th January 2020. Thus, it was submitted that Mrs. Mercy Latha, Managing Trustee did not obtain or derived any benefit from the said land. The learned counsel for the assessee submitted that bankers were insisting as a condition for grant of loan that the said land be acquired and registered in the name of Mrs. Mercy Latha, Managing Trustee and not in the name of the trust as it is difficult to create encumbrance of the trust property and property registered in the name of the trust is difficult to be enforced in the event of loan default. It was submitted that Mrs. Mercy Latha, Managing Trustee of the assessee-trust is a high net worth individual and had stood as guarantor for the said loan . It was submitted by learned counsel for the assessee that she had given personal guarantees for loan granted by UBI in favour of the assessee-trust. It was submitted by learned counsel for the assessee that Mrs. Mercy Latha, Managing Trustee held the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the name of Mrs. Mercy Latha, Managing Trustee as required by UBI. It was also submitted that it was decided in the meeting that property of the trust shall not be transferred by the Managing Trustee in the any manner whatsoever. The copy of Minutes dated 03.09.2015 and fresh Lease Deed of March 2020 are additional evidences produced by assessee for the first time before the Tribunal. The said documents are placed in the file. The Ld.DR submitted that these two documents were never produced before learned AO/CIT(A) and since they are produced for the first time before tribunal , hence these are additional evidences which requires verification by AO. The learned DR submitted that if these documents are to be admitted and considered while adjudicating this appeal , then the matter may be restored to the file of AO for fresh adjudication. The Ld.Counsel for assessee submitted that Managing Trustee has not drawn any benefit from said property and the said parcel of land so acquired was simply transferred to assessee Trust on lease basis, firstly for a period of three years and then for a period of 33 years. It was also submitted that no benefit whatsoever was derived by Managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter be set-aside to the file of AO for fresh consideration. The Ld.DR also submitted that keeping in view that additional evidences are filed by assessee for the first time before the tribunal which required verification by the AO, the matter needs to be restored to the file of the AO for fresh examination. 6. We have heard both the parties through video conferencing and perused the material available on record. We have observed that the assessee is a Public Charitable Trust registered under Indian Trust Act, 1882 , with an object of providing education as its one of the main objects. The assessee was holding registration u/s 12AA of the 1961 Act. The assessee trust availed bank loan of ₹ 4,00,00,000/- from Union Bank of India, Guindy Branch, Chennai in the month of September 2015. The said amount of loan amount to the tune of ₹ 4,00,00,000/- which was credited by Union Bank of India(UBI) to assessee s bank account was transferred by assessee-trust to the bank accounts of Mrs. Mercy Latha, Managing Trustee of the assessee-trust in the first week of October 2015, aggregating to ₹ 4,00,00,000/- . Mrs. Mercy Latha , Managing Trustee of the assessee-trust acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r produced before learned AO/CIT(A), and hence these additional evidences had not stood the scrutiny/verification by lower authorities. It is also not explained whether these minutes were registered by assessee-trust with competent authorities as required under Indian Trust Act, 1882. The assessee has also produced Lease Deed of March 2020 wherein Mrs. Mercy Latha has executed and registered lease deed with respect to said property in favour of assessee trust for a period of thirty three months, effective from 27.01.2020 . The first lease was executed on 22.12.2015 by Mrs. Mercy Latha with respect to said property for a period of three years , free of rent. In this fresh lease deed of March 2020 effective from 27.01.2020, it is stipulated that she is holding the said property in her name for the sole benefit of the assessee-trust and consequently holding the said property in fiduciary to assessee-trust. She has however charged and collected advance rent of ₹ 5,94,000/- for a period of thirty three years from assessee with respect to said property. The fresh lease deed of March 2020 is also placed in file . This is again an additional evidence filed by assessee for the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to get the property registered in the name of Mrs. Mercy Latha. Thus, it is made out that no infringement of Section 13(1)(c) , 13(1)(d) and Section 13(2) of the 1961 Act has taken place and assessee is entitled for deduction u/s 11 and 12 of the 1961 Act. It is also the say of learned counsel for the assessee that now school is being constructed on the said land by assessee-trust after obtaining requisite approvals from competent authorities and substantial amount is already spent by assessee on building school on the said land. It is explained that all permissions from competent authorities were obtained in the name of assessee-trust for constructing School Building on said land. These facts requires verification by the AO. The assessee has also placed certain additional evidences which goes to root of the matter and in our considered view, the matter needs to be restored to the file of the AO who shall enquire into entire factual matrix surrounding the acquisition of the property by Mrs. Mercy Latha in her personal name , despite funds been provided by assesse-trust for acquisition of said property out of borrowings by assessee made from UBI . The assessee is paying interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also made out that the bankers were insisting on the registration of property in the name of Mrs. Mercy Latha and hence land was registered in her name , but perusal of sale deed shows that Mrs. Mercy Latha made first payment for acquiring the aforesaid land way back in 28.11.2014 when two cheques, firstly of ₹ 25 lacs and secondly of ₹ 5 lacs was given to the seller of land by Mrs. Mercy Latha. The agreement to sale entered into at the time of advancing of ₹ 30 lacs is not brought on record. The assessee is directed to provide explanation to that effect before the AO in set aside proceedings. This aspect is also to be looked into by AO before framing denovo assessment. The learned counsel for the assessee has referred to provisions of Section 31 of Tamil Nadu Recognised Private Schools (Regulation) Act, 1973 and stated that the procedure for getting permission for purchase of property is very cumbersome . In our considered view, difficulty in complying with procedure is no excuse unless assessee is able to demonstrate impossibility of performing an act and that too under these circumstances also, execution in deviation with provisions of statute has to be withi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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