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TMI Blog2025 (3) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for a building which was provided free of charge to ABET to enable them to start "Aditya Birla World Academy School". Accordingly, the impugned order passed by the learned CIT(A) on this issue is also upheld. As a result, Grounds No.1 to 4 raised in Revenue's appeal are dismissed. Allowance of standard deduction u/s 24 while computing the income under the head "income from house property" - whether the assessee, claiming exemption u/s 11, is entitled to claim a deduction of a sum equal to 30% of the annual value u/s 24(a)? -We find that in CIT vs Rao Bahadur Calavala Cunnan Chetty Charities, [1979 (8) TMI 17 - MADRAS HIGH COURT] held that the income from property held under trust would have to be arrived at in a normal commercial manner without reference to the provisions which are attracted by section 14. Also in Girdhari Lal Shewnarain Tantia Trust [1991 (6) TMI 8 - CALCUTTA HIGH COURT] rendered similar findings and held that the income from the property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope for computing the income from house property by applying the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence liable for disallowance? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in ignoring the fact where the funds of the trust were diverted and used for the benefit of excluded person are covered within the provision of section 13(2)(b) and 13(2)(g)? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CITIA) is correct in ignoring the fact where the rents paid for premise and was diverted and used for the benefit of excluded person are covered within the provision of section 13(2)(a)? 4. Without prejudice to the above substantial question of law, whether on facts and circumstances of the case and in law the Ld. CIT(A) was justified in not appreciating the fact that if a charitable entity provides any benefits to its members who are also substantial contributors, then it loses the benefit of section 11 and its charitable character as provisions of Section 13(1) (c) read with Section 13(3) (b) are clearly invoked? 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing standard deduction u/s. 24 of the Act while computing the Income from House Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have sufficient funds, the assessee, as part of its object of promoting education agreed to provide interest-free financial assistance to ABET, which they could repay in a period of 2-3 years. The assessee further submitted that the loan taken from Grasim Industries Ltd. and Aditya Birla Nuvo Ltd. was fully repaid in the year under consideration along with interest. It was further submitted that one of the objects of the assessee is to promote education and in furtherance of its objective, financial assistance was provided to ABET, to enable them to purchase the building, in which they were running the school. Accordingly, the assessee submitted that the interest is fully and exclusively for the promotion of education and therefore, is an allowable charitable expenditure. 5. The Assessing Officer ("AO") vide order dated 18.03.2014 passed under section 143(3) disagreed with the submission of the assessee and held that ABET is a related party of the assessee since the settlor of ABET is related to Key Management Personnel of the assessee, and accordingly, would fall within the category of "specified person" as per the provisions of section 13(3) of the Act. The AO further no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan to ABET is covered with the provisions of section 13(2)(a), section 13(2)(b) and section 13(2)(g) of the Act, as ABET is a person specified in section 13(3) of the Act. On the contrary, it is the plea of the assessee that even though ABET was formed by the settlor, who is the wife of a lineal descendant of the Key Management Personnel of the assessee, the same by itself does not lead to the conclusion that ABET falls in any of the clauses of section 13(3) of the Act. 8. Therefore, in order to decide the issue at length, i.e., whether ABET is a person specified in section 13(3), and therefore, the interest-free loan advanced by the assessee to ABET is covered within the provisions of section 13(2), it is necessary to analyse the provision of section 13 of the Act. Section 13 of the Act deals with circumstances in which the exemption granted under section 11 shall not be applicable. Sub-section (2) to section 13 of the Act, more particularly clauses (a), (b) and (g), invoked by the AO for disallowing the interest paid by the assessee, reads as follows: - "(2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (d) has a substantial interest." 10. In the present case, as per the AO, since the assessee advanced the interest-bearing loans availed by it to ABET without charging any interest, such a transaction falls within the ambit of provisions of section 13(2) of the Act. In this regard, the AO has laid emphasis on the fact that even though the assessee is a company registered under section 25 of the Companies Act, 1956 and is thus limited by guarantee, however, the Key Management Personnel of the assessee includes - (i) Smt. Rajashree Birla, (ii) Shri Ashwin K. Kothari, (iii) Shri A.K. Agarwala. Further, the AO also took note of the fact that Smt. Neerja Birla, the settlor of ABET and Shri Kumar Mangalam Birla are the son and daughter-in-law of Smt. Rajashree Birla, the Key Management Personnel of the assessee. Since ABET was formed by the settlor, Smt. Neerja Biral by remitting on to the Trustees a sum of Rs. 50,000/- towards settlement of the trust, as per the AO, under section 13(3)(b) of the Act, she is considered to be a person who has made a substantial contribution to the trust. 11. However, it is pertinent to note that for the purpose of section 13(3)(b) of the Act, a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which any person referred to any clause (a), clause (b), clause (c), clause (cc) and clause (d) held substantial interest, as a person specified under section 13(3) of the Act. Extending the aforementioned argument that Smt. Rajashree Birla is a manager of the assessee and Smt. Neerja Birla, being her daughter-in-law and also as the settlor of ABET made contributions while creating the ABET, it is pertinent to examine whether Smt. Neeraj Birla can be said to have a substantial interest in ABET, as she satisfies the condition of being the relative of the manager of the assessee. In this regard, it is relevant to note that the provisions of Explanation - 3 of Section 13 of the Act which reads as follows: "Explanation 3.-For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the assessee for a building which was provided free of charge to ABET to enable them to start "Aditya Birla World Academy School". Accordingly, the impugned order passed by the learned CIT(A) on this issue is also upheld. As a result, Grounds No.1 to 4 raised in Revenue's appeal are dismissed. 16. Ground No.5 raised in Revenue's appeal pertains to allowance of standard deduction under section 24 of the Act while computing the income under the head "income from house property". 17. We have considered the submission of both sides and perused the material available on record. The brief facts of the case are that during the assessment proceedings, the AO observed that the assessee has entered into a lease agreement with New Era Education Trust and earned rental income amounting to Rs. 8,38,000/-, which was offered to tax under the head "income from house property". The AO further noted that while computing its income, the assessee has claimed 30% as a Standard Deduction under section 24 of the Act. Disagreeing with the submission of the assessee, vide assessment order, the AO held that the computation of income from property held under trust is distinct from the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of ss. 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that we have taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19th June, 1968, reproduced in V.S. Sundaram's Law of Income Tax in India, 11th Edn., p. 798." 19. We further find that the Hon'ble Calcutta High Court in DIT(Exemption) vs. Girdhari Lal Shewnarain Tantia Trust, reported in (1993) 199 ITR 215 (Kol), rendered similar findings and held that the income from the property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope for computing the income from house property by applying the provision of section 14 of the Act. The relevant findings of the Hon'ble Calcutta High Court, in the aforesaid decision, are reproduced as follows: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 cannot be pressed into service in such a case. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated does not arise when the trust loses the benefit of accumulation." 20. During the hearing, in support the submission that the deduction under section 24 of the Act is available to the assessee, the learned Authorized Representative ("learned AR") placed reliance upon the decisions of the Coordinate Bench of the Tribunal in ADIT vs. Sri Sathya Sai Trust, in ITA No.7350/Mum/2011 and in Shantaram Bhatt Charitable Trust, reported in (2020) 180 ITD 735 (Mum-Trib). From the perusal of both the decisions, relied upon by the learned AR we find that there is no reference to the decision of the Hon'ble Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra), which has been considered by the Hon'ble Calcutta High Court in the decision cited (supra) and was also followed by the AO in disallowing the deduction claimed under section 24 of the Act by the assessee. Thus, respectfully following the aforesaid decision of the Hon'ble Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e co-ordinate bench of the Tribunal vide order dated 04.03.2024, observed as follows: - "9. We have heard the parties and perused the material on record. The main reason that the AO to make the addition towards interest is that the assessee is following hybrid system of accounting. The AO also did not accept the submissions of the assessee that only the real income can be applied towards the objects of the trust for the purpose of claiming exemption under section 11. The CIT(A) has given relief to the assessee on the ground that the AO failed to rebut the assessee's contention that the assessee being a Trust was free to follow hybrid system of accounting and that all Trust are not bound to follow mercantile system of accounting. The main contention of the is that the emphasis should be given to the words used in section 145 that "the system of accounting regularly employed by the assessee" and that the assessee has been consistently following the cash system of accounting since inception in the year 1988 which has been accepted by the Revenue until AY2010-11. It is also contented that the assessee is not following hybrid system as claimed by the AO as in violation of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee while offering income under the head "Income from Other Sources" has done so following cash system of accounting and therefore the decision of the Hon'ble High Court is not applicable in assessee's case. 11. The alternate contention of the Id AR is that there is no real loss to the revenue since the interest income reduced in the earlier year is offered in the subsequent year on receipt basis. From the perusal of the below table as submitted by the Id. AR during the course of hearing it is clear that the assessee is adding the interest income which was deducted in the previous AY to the income of the current AY on receipt basis and the amount of interest not received during the year under consideration is reduced (Amount in Rupees) Particulars AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 Interest income as per Financial Statement 2,78,54,824 6,60,47,102 6,99,96,295 6,47,56,485 Add: Accrued interest of previous year and received in current year 2,81,42,396 5,51,16,611 3,82,40,749 67,98,483 Sub Total 5,59,97,220 12,11,63,713 10,82,37,044 7,15,54,968 Less : Accrued interest of current year and not received in current year 5,51,16,611 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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