M.P. SANTHOSH KUMAR, ITO, CHENNAI vs. GREENPEACE ENVIRONMENT TRUST, CHENNAI

3. The ld. CIT(A) erred in deleting the addition made by invoking provision of section 13(1)(c) when the Income Tax Act clearly prohibits the utilization of funds for the benefits of trustees and other interested persons.

4. The Id. CIT(A) failed to appreciate the fact that the Diem & Subsistence Allowance was disallowed as the expenses are incurred on people who are not employees of the assessee trust.

5. Whether the Id. CIT(A) was right in deciding the issues without justifying the reasons for allowing the claims of the assessee even as the AO has substantiated the additions made by him.

:-3-: ITA. No:406/Chny/2025 M/s.Green Peace India Society and M/s.Greenpeace Environment Trust(assessee) are with same persons. Thus, the AO observed that there was violation of section 13(3)(c) and (e) of the Act, hence the exemption u/s.11 of the Act was denied. Further, the following expenses were disallowed. - Depreciation Rs. 49,223/-; - air travel expenses Rs.91,37,031/- and - per Diem & subsistence Rs. 1,44,186/-.

The AO thus completed the assessment vide order u/s.143(3) of the Act dated 31.03.2014 determining the total income at Rs.3,60,85,715/- and the same was taxed as AOP at Maximum Marginal Rate (MMR) as per the provisions of the Act.

I. Application Of Section 13(3) To Charitable Trusts: The AO in his assessment order u/s.143(3) dated 31.03.2014 has invoked section 13(3)(cc) and section 13(3)(e) to disallow air travel expenses of Rs.91,37,031/- and per diem and subsistence of Rs.1,44,186/-. The sections have been invoked on the ground that the expenses have been incurred on the employees of Greenpeace India Society (GPIS) and both the Appellant and GPIS have common trustees. At the outset it is to be noted that GPIS is a society registered under the Tamilnadu Societies Registration Act and like the Appellant is also registered under section 12AA and 80G of the Income Tax Act. GPIS’ appeal (111/14-15) for the same assessment year is also before you.

:-4-: ITA. No:406/Chny/2025 (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. 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 or more of the other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.” 1.2 Section 13 (1) (c) “13. Section 11 not to apply in certain cases. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof— (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof— (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3)” 1.3 Section 13 (2) “13. Section 11 not to apply in certain cases. (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),— (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any :-5-: ITA. No:406/Chny/2025 period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest.”

2. From a reading of the above sections it is clear that section 13(3) is relevant with respect to section 13(1)(c) and section 13(2). 2.1 Under section 13(1)(c) if any income of a charitable trust enures or if any part of the income/property of the trust is used or applied directly or indirectly for the benefit of the prohibited category of persons listed in section 13 (3), the exemption under section 11 will not apply. Therefore to attract section 13(1) (c) read with section 13 (3) (cc) or 13 (3) (e) it should be established that the expenses which have been disallowed have enured for the benefit of any trustee/manager of the Appellant or any concern (GPIS in this case) in which the author, substantial contributor, trustee etc., are substantially interested. 2.2 Section 13 (2) is a deeming provision which refers to payments in the nature of income, loan, user of the services/assets of the trust without adequate recompense, purchase/sale of assets for more than adequate or inadequate consideration etc., to persons listed in section 13(3).

3. The first question is whether GPIS which is a charitable trust under section 12AA can attract section 13(3) (cc) or 13(3) (e). In our opinion it is not possible to invoke section 13 (3) (cc) and 13(3) (e) with respect to GPIS in the case of the Appellant, for the following reasons.

:-6-: ITA. No:406/Chny/2025 3.1 GPIS is not the trustee or manager of the Appellant and so section 13(3) (cc) cannot apply. 3.2 Although GPIS and the Appellant have common trustees, both the entities are not concerns in which any one can have substantial interest. Explanation 3 (paragraph 1.1) defines substantial interest. Explanation 3(i) applies to companies and as GPIS is not a company this limb is inapplicable. Explanation 3 (ii) can apply only if the prohibited category of persons are entitled to profits of 20% and above in GPIS. GPIS being a charitable trust the question of its profit or any share of its income accruing to any person does not arise. Therefore, GPIS cannot attract section 13 (3) (e) also. 3.3 Common trustees/EC members in two charitable entities registered under section 12AA cannot attract section 13(3) at all. 3.4 The trustees/executive council members have no beneficial interest in either GPIS or the Appellant. Beneficial interest is not even contemplated or possible in favour of the trustees and executive council members. The trust deed of the Appellant (ANNEXURE 1) and the certificate of registration and the memorandum of association/rules and regulations (ANNEXURE 2) of GPIS are enclosed. GPIS and the Appellant are not business entities and therefore the question of invoking section 13(3) (e) read with Explanation 3 (ii) does not arise. Letters granting registration under section 12AA and 80G of GPIS (ANNEXURES 3 and 4) and of the Appellant (ANNEXURES 5 and 6) are enclosed. Trustees/executive council members of the Appellant/GPIS are not the owners of the assets/income of the Appellant/GPIS. They hold the assets/income of the Appellant/GPIS in a fiduciary capacity for the benefit of the beneficiaries only. 3.5 In this connection please refer to the following extracts from the orders of ITAT Chennai. In these cases, it has been held that section 13 (3) cannot be invoked in the case of transactions between two charitable trusts registered under section 12AA as there is no benefit flowing to the trustees and other prohibited persons listed in section 13(3). 3.5.1 ACIT vs. Mamallan Educational Trust – ITA 456/Mds/2012 (Indian Kanoon - http://indiankanoon.org/doc/153518954/) - paragraphs 6 and 7 of the order (ANNEXURE 7). “6. We have perused the orders and heard the rival submissions. There is no dispute that M/sSivaraja Ramalinga Trust, to which assessee had given money, was a Trust registered under Section 12AA of the Act. The A.R. has placed a copy of order under Section 12AA of the Act granting registration to such Trust. Two things are very clear. One is that M/s.Sivaraja Ramalinga Trust was a Trust and second is that some of the trustees were common. However, in our opinion, trustees hold the property of the Trust in a fiduciary capacity and not as owners. The owners of the Trust property were always its beneficiaries and trustees were holding the property and income therefrom for the benefit of beneficiaries and not for themselves. We cannot say that just because two Trusts are having common trustees, they are related concerns. Trust will not fall within the concept of "concern" mentioned in clause (e) of sub-section (3) of Section 13 of the Act. Invocation of Section 13(1), in such a situation, was not at all warranted. CIT(Appeals) was justified in relying on the decision of co-ordinate Bench of this Tribunal in the case of Jeppiaar Educational Trust (supra) and holding that assessee was eligible for :-7-: ITA. No:406/Chny/2025 exemption under Sections 11 and 12 of the Act. We find no reason to interfere with the order of CIT(Appeals).

:-9-: ITA. No:406/Chny/2025 4.7 Consequently section 13(2) and 13(1) (c) do not apply. Section 13(3) in itself is operational only if section 13(1) (c) and 13(2) apply. Where the expenses do not attract 13(2) and 13(1) (c), section 13 (3) is not relevant. In the Appellant’s case even section 13 (3) does not apply as is clear from paragraph I (3) above.

III. ARGUMENTS ON MERITS.

5. Even on merits the expenditure ought not to have been disallowed. 5.1 The Appellant had explained all the facts and responded to the questions of the learned AO in detail. 5.2 The Appellant had stated in its letter dated 26 February 2014 (ANNEXURE 11) on no expenditure being incurred on salary during the year as below:- “Salary cost for the year ended 31.03.2011 was nil as against Rs.1,10,71,458:- Keeping in view of the declining trend of fresh fund raising income and to maintain the corpus of the Trust it was decided by the management to achieve the objectives of the Trust through volunteers instead of employees. Further, it was decided by the management to meet the expenses of the volunteers from the income of the trust. Hence the expenditure on salary costs was nil for the year ended 31.03.2011.” 5.3 Similarly in its letter dated 28 March 2014 (ANNEXURE 12) to the learned AO it was clarified that trustees were not paid any remuneration and the context/genesis of GPIS was explained too. 5.4 Employees of GPIS had volunteered to work for the Appellant subject to actual expenses on travel etc., being reimbursed. This was based on signed letters from them. Sample letter dated 1 April 2010 (Ms.Hozefa Merchant) is in ANNEXURE 13. 5.5 As long as the expenses are genuine and have been incurred for the purpose of the activities of the Appellant, the person incurring the expenditure (employee or not) is irrelevant. Please refer Appellant’s letter dated 28 March 2014 submitted to the learned AO in this connection (ANNEXURE 14). The Order does not question the need or genuineness of expenses or the Appellant’s activities and so disallowance is not justified in law. The expenses did not benefit GPIS or its employees or its EC members or the Appellant’s trustees in any manner as the expenses were only genuine travel expenses.

IV. DEPRECIATION 6. Depreciation of Rs.49,223/- has been disallowed without stating the reasons. 6.1 Appellant does not claim capital expenditure to be exempt in its return. Please see the income and expenditure account (ANNEXURE 10) and the Order. Only revenue expenses are included in Rs.1,33,49,542/- shown in paragraph 5 of the Order. Fixed assets are shown in the balance sheet. Rs.1,33,49,542/- included depreciation of Rs.49,223/- under the head office maintenance cost – schedule to income and expenditure account. 6.2 Depreciation is allowable in the hands of charitable trusts. Please see the following decisions:-

:-10-: ITA. No:406/Chny/2025 - JCIT vs. Bhaktavatsalam Memorial Trust 30 ITR (Trib) 264 (Chennai) - ITO vs. Coimbatore Stock Exchange Limited [2014] 2 ITR (Trib)-OL 166 (Chennai) - CIT vs. Tiny Tots Education Society 330 ITR 21 (Punjab and Haryana). The High Court held that allowing depreciation and capital expenses as application does not amount to double deduction. - CIT vs. Society of Sisters of St.Anne (146 ITR 28 – Karnataka) - CIT vs. Sheth Manilala Ranchhoddas Vishram Bhavan Trust (198 ITR 598 – Gujarat) - CIT vs. Raipur Pallottine Society (180 ITR 579 – Madhya Pradesh) - CIT vs. Leelavathi Kirtilal Mehta Medical Trust (54 Taxmann.com 247 – Bombay V. EXEMPTION UNDER SECTION 11 7. We request you to direct the learned AO to allow exemption under section 11 as claimed in the return of income and accept the figures so returned in the light of the submissions in paragraphs 2 to 5 above.

6. Considering the submissions made by the assessee during the first appellate proceedings, the ld.CIT(A) allowed the appeal in favour of the assessee. The relevant observations of the ld. CIT(A) are as under: “I have considered the submission of the appellant and facts of the case carefully. I find that the trustees and administrators and EC Members of both trusts i.e. appellant trust and its sister concern namely GPIS are the same. I find that the expenses of Rs.91.37 lakhs were claimed to have been incurred on foreign travel of volunteers i.e. the employees of GPIS and the trustees and administrators and EC Members of the appellant. The appellant had furnished the details of persons and purpose of the travel before AO and the same is also submitted during appellate proceedings. Considering the submission filed by the appellant, I find that the provisions of 13(3) are not applicable since the conditions mentioned in explanation 3(ii) to section 13 of the Act are not fulfilled. Further I find that the AO has not demonstrated that the income of the appellant has been applied directly or indirectly for the benefit of trustees/administrator of the appellant as per the provisions of section 13(3) of the Act. Further I find that the AO has not given any justification for disallowing the depreciation of Rs.49,233/-. Therefore, the disallowances made by the AO in the assessment order are not justified. Further I find that the AO has not demonstrated that there is violation of provisions of section 13(3)(c) & (e) and hence the denial of exemption u/s 11 & 12 is not justified. In view of the above, the grounds of appeal raised by the appellant are allowed.”

7. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.

:-11-: ITA. No:406/Chny/2025 etc., by invoking section 13(1)(c) of the Act. The ld.DR also submitted that the Per-diem & Subsistence Allowance was disallowed as the expenses are incurred on people who are not employees of the assessee trust. In light of the above, the order of the ld.CIT(A) is not justified and hence prayed for set aside and to confirm the order of the AO.

:-13-: ITA. No:406/Chny/2025

Order pronounced in the court on 25th August, 2025 at Chennai.