DCIT, CHENNAI vs. M/S. VELS INSTITUTE OF SCIENCE & ADVANCED STUDIES, CHENNAI

PER G.MANJUNATHA, AM: These four appeals filed by the Revenue are directed

against separate, but identical orders passed by the learned

Commissioner of Income Tax (Appeals)-17, Chennai, all dated

12.10.2018 and pertain to assessment years 2012-13 to 2015-

sake of convenience, these appeals were heard together and

are being disposed off, by this consolidated order.

ITA Nos.3547 & 3548/Chny/2018 (AY: 2012-13 & 2013-14):

of appeal for all these assessment years, therefore, for the

2 ITA Nos. 3547 to 3550/Chny/2018

sake of brevity, grounds of appeal filed for assessment year

2012-13 are reproduced as under:-

“1. The order of the learned CIT(A) is contrary to the law and facts of the case. 2. The Ld CIT(A) erred in holding that the Trust is eligible for exemption u/s.11 ofthe Income-tax Act,1961 and there was no violation u/s.13(1)(c) of the Income-taxAct,1961 in respect of amount paid to Managing Trustee for purchase of land at Manjakaranai. 3. The Ld CIT(A) erred in holding that advances made by the Trust to the concerns in which the trustees are substantially interested are not attracted by the provisions of Sec. 13(1 )(d) r.w. Sec. 11(5) of the Income-tax Act, 1961 4, The Ld CIT(A) erred in holding that the assessee would be eligible for exemption u/s 11(1)(d) in respect of the corpus donations received of Rs.4.23 crore when the provisions of Sec. 13(1)(c) and 13(1)(d) are violated. 5. The Ld CIT(A) erred in giving relief to the assessee without confirming receipt of interest at the rate of 14% for the advance of Rs.2 crore paid to VGS Estates (P) Ltd; in which the trustee is having substantial interest within the meaning of sec 13(3) of Income-tax Act,1961. 6. The Ld CIT(A) erred in allowing interest of Rs.2.02 crore on the term loan taken from ICICI Bank as application of income eventhough such loan was advanced to specified persons without charging interest and the CIT(A) merely followed the predecessor CIT(A) order dated 08.07.2016 which was set aside by the Hon’ble ITAT with a direction to examine the commercial expediency in advancing interest free loan to such specified persons. 7. The Ld CIT(A) erred in holding that there is no violation of provisions of sec.13 of Income-tax Act,1961, eventhough the property with the guideline value of Rs.4 crore was purchased for Rs. 13.57 crore from VGS Estate (P) Ltd in which the trustee is having a substantial interest. 8. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned

3 ITA Nos. 3547 to 3550/Chny/2018

CIT(Appeals) may be set aside and that of the Assessing Officer may be restored.” 3. Brief facts of the case are that the assessee trust is

registered u/s.12AA of the Income Tax Act, 1961 and claimed

exemption u/s.11 of the Act for the year under consideration.

The assessee trust is engaged in charitable activities by

imparting education. The assessment for assessment year

2012-13 & 2013-14 has been completed u/s.143(3) of the

Income Tax Act, 1961, on 30.03.2015 and 31.03.2016

respectively, where the Assessing Officer has denied

exemption claimed by the assessee u/s.11 of the Income Tax

Act, 1961, on the ground that there is violation referred to u/s.

13(1)(c) r.w.s 13(3) of the Act in respect of loans and

advances given to related parties. The assessee carried matter

in appeal before the first appellate authority. The learned

CIT(A) allowed appeal filed by the assessee for both

assessment years and held that trust is eligible for exemption

u/s.11 of the Income Tax Act, 1961, because there was no

violation referred to in section 13(1)(c) of the Act, in respect of

amount paid to Managing Director for purchase of land at

Manjakarani and also advances paid to M/s. VGS Estates Pvt.

Ltd. and thus, allowed exemption claimed by the assessee. The

4 ITA Nos. 3547 to 3550/Chny/2018

Revenue challenged order of the learned CIT(A) before the

ITAT., Chennai. The Tribunal vide its order dated 17.08.2017 in

ITA No.2857 & 2858/Mds/2016 for assessment years 2012-13

& 2013-14 has set aside order of the learned CIT(A) and

restored appeals with direction to consider certain issues which

were not there for assessment year 2010-11 and 2011-12,

because the learned CIT(A) has primarily relied upon his

predecessor CIT(A) order for earlier years whiling giving relief to

the assessee. The learned CIT(A) during course of

proceedings before him in pursuant to the direction of the

Tribunal has set out issues needs to be adjudicated for both

assessment years. The relevant issues set out by learned

CIT(A) are as under:-

“3. As stated earlier, the CIT(A) orders for AYs.2012-13 & 2013- 14 havebeen set-aside by the Hon’ble ITAT, vide order in ITA Nos.2857 & 2858 /Mds/2016 dated 17.08.2017 for reconsideration of certain issues. Asper the directions of the Hon’ble ITAT, the matters pertaining to A.Ys.2012-13 & 2013- 14 that are to be decided by the CIT(A) are as under:

(A) May Fair Land at ZaminPallavaram purchased from VGS Estates (P) Ltd. : Amount involved : Rs.14 crores -- not adjudicated by CIT(A) remitted back by ITAT to consider afresh : A.Y. 2012-13.

(B) Advance of Rs.2 crores paid to JGS Estates (P) Ltd. for purchase of property - Thalambur Property : Cancellation of agreement by the Trust and forfeiture of Interest

ITA Nos. 3547 to 3550/Chny/2018

amount by VGS Estates (P) Ltd. -- remitted back to CIT(A) by ITAT to consider afresh A.Y. 2012-13

(C) Manjakaranal Property : Calculation of Interest to be considered by the AO : Issue party allowed : To be decided by CIT(A) : AY. 2012-13

(D) Advances made by the Trust to related parties — Interest received or not by the Trust to be verified w.r.t. books of accounts : To be decided byCIT(A) :A.Y. 2012- 13 (E) Interest paid of Rs.2.02 crores on Term Loan availed from ICICI Bank:Disallowance of interest since used for advancing interest free loans to interested parties : To be decided by CIT(A) :A.Y. 2012-13.

(F) Corpus Donation received of Rs.4.23 crores : Confirmation from parties : confronted to AO : To be decided by CIT(A) : A.Y. 2012-13

(G) Violation of provisions of Sec.13(1)(c) : Amount paid to ManagingTrustee for purchase of land : Manjakarani Property: To be decided byCIT(A) : A.Y. 2013-14

(H) Payment made to Vinayaka Education Trust : To be decided by CIT(A):AY. 2013-14

(I) Total Advance paid of Rs.25 crores (Rs.2 crores in A.Y. 2012-13 & Rs.50 lakhs in A.Y.2013-14) returned by VGS Estates (P) Ltd. towards purchase of property - Thalambur Property : Cancellation of agreement by the Trust and forfeiture of Interest amount by VGS Estates (P) Ltd. -- remitted back by ITAT to consider afresh : AY. 2013-14.

(J) Violation of Sec. 13(i)(d) r.w.s. 11(5) Advances made by the Trust to related parties : remitted back by ITAT to consider afresh : AY. 2013-14.”

6 ITA Nos. 3547 to 3550/Chny/2018

proceedings, in pursuant to directions of the Tribunal, had

considered all issues and after taking remand report from the

Assessing Officer has decided issue of loans and advances

paid to Managing Trustee Dr.Ishari K.Ganesh for Manjakarani

property, and advances made by the trust to related parties in

light of provisions of section 13(1)(c) of the Act, and held that

issue involved in present appeal is squarely covered by the

decision of ITAT., Chennai in assessee’s own case for

assessment year 2010-11 & 2011-12, where identical issue has

been considered by the Tribunal regarding advances given to

related parties for purchase of land and held that when trust

has given advance to related parties for purchase of land, then

it cannot be said that there is a benefit to the interested parties

as referred to u/s.13(1)(c) r.w.s 13(3) of the Act, and thus, the

Assessing Officer has erred in denying exemption claimed by

the assesse. Similarly, the learned CIT(A) has also considered

issue of corpus donation received by the trust from certain

parties with specific direction in light of remand report of the

Assessing Officer and held that the Assessing Officer has

denied exemption to corpus donation only on the ground that

7 ITA Nos. 3547 to 3550/Chny/2018

trust is not entitled for exemption u/s.11of the Act, because of

violation referred to u/s.13(1)(c) of the Act, otherwise has not

made any observation regarding entitlement of the trust for

exemption on said corpus donation, therefore, deleted

additions made by the Assessing Officer. Similarly, the learned

CIT(A) has also considered disallowance of interest paid on

term loan availed from ICICI bank in light of arguments of the

assesse and observed that when the assessee has availed

loan from bank to give advances for purchase of property, then

it cannot be said that there is violation of section 13(1)(c) of

the Act, merely because, said advance was given to related

parties, when the assessee has demonstrated with evidences

to prove that trust has purchased land to pursue its objects of

imparting education. The learned CIT(A) had also considered

one more issue of rent payments to M/s.Vinayaga Educational

Trust, in light of observations of the Assessing Officer that rent

paid by the assessee to related party is excessive and

unreasonable and observed that when provisions of section

13(1)(c) is not applicable to trust registered u/s.12A with similar

objects, then the Assessing Officer has erred in making ad-hoc

disallowance of rent payment of other trust for availing premises

8 ITA Nos. 3547 to 3550/Chny/2018

for the purpose of trust merely for reason that said trust was

under same management. The learned CIT(A) has also

considered one more issue of purchase of May Fair land at

Zamin Pallavaram from M/s. VGS Estates Pvt.Ltd. in light of

advance paid to managing trustee and held that when the

assessee trust has purchased land for the purpose of trust, the

Assessing Officer cannot doubt genuineness to argue that there

is violation of provisions of 13(1)(c) of the Act, just because said

transaction was between interested parties and further,

guideline value of the property is less than consideration paid

by the assessee for purchase of land. To sum up, the learned

CIT(A) has considered all issues set aside by the Tribunal in

light of various arguments made by the assessee and also

remand report of the Assessing Officer and opined that there is

no violation referred to under section 13(1)(c) r.w.s 13(3) of the

Act, and thus, the assessee is entitled to benefit of exemption

u/s.11 of the Income Tax Act, 1961, and accordingly, directed

the Assessing Officer to allow exemption as claimed by the

assesse. Aggrieved by the learned CIT(A) order, the revenue is

in appeal before us.

9 ITA Nos. 3547 to 3550/Chny/2018

assessment years 2012-13 & 2013-14 from revenue appeal is

loans and advances given to related parties for purchase of

landed property as violation referred to u/s.13(1)(c) r.w.s 13(3)

of the Income Tax Act, 1961, and consequently, denial of

exemption u/s.11 of the Act. The assessee trust had given

advances to Dr.Ishari K. Ganesh, founder and managing

trustee of assessee trust for purchase of land, and said

advance has been adjusted against consideration paid for

purchase of land in the subsequent financial year. The

Assessing Officer has treated advance given to founder &

managing trustee as violation referred to u/s.13(1)(c) r.w.s 13(3)

of the Act, on the ground that although, the assessee has paid

advances for purchase of property, but if you compare

guideline value of property purchased by the trust and

consideration paid for acquiring said land, then there is huge

difference and thus, opined that excess amount paid over and

above guideline value of property purchased by the assessee

has been treated as amount given to interested persons as

referred to u/s.13(3) in violation of section 13(1)(c) of the Act

and thus, rejected exemption claimed by the assessee. The

10 ITA Nos. 3547 to 3550/Chny/2018

learned CIT(A) after considering relevant facts and also by

following decision of ITAT., Chennai in assessee’s own case for

assessment years 2010-11 & 2011-12 held that loans &

advances given to founder and managing trustee for purchase

of land for purpose of trust cannot be treated as benefits to

interested persons as referred to u/s.13(3) of the Act, in

violation of section 13(1)(c) of the Act, and thus, benefit of

exemption u/s.11 cannot be denied to the assessee trust.

issue is squarely covered in favour of the assessee by the

decision of the ITAT., Chennai in assessee’s own case for

earlier assessment year 2010-11 & 2011-12 including

assessment year 2012-13 & 2013-14 in first round of litigation,

where the Tribunal under identical set of facts held that loans &

advances given by the trust to interested persons referred to

u/s.13(3) of the Act, has been held as normal transactions

between parties which does not attract provisions of section

13(1)(c) of the Act and consequently, exemption u/s.11 cannot

be denied to the trust.

11 ITA Nos. 3547 to 3550/Chny/2018

issue is squarely covered by the decision of ITAT., Chennai in

assessee’s own case for earlier assessment years. However,

supported order of the Assessing Officer.

on record and gone through orders of the authorities below. The

issue of loans and advances given to Dr. Ishari K.Ganesh and

also another related concern M/s.VGS Estates Pvt.Ltd. for

purchase of property is in violation of section 13(1)(c)

r.w.s.13(3) of the Act or not has been considered by the

Tribunal in assessee’s own case for assessment year 2011-12

in ITA No.1548/Mds/2015 vide order dated 19.12.2016, where

under identical set of facts and also on similar loans and

advances given to founder and managing trustee for purchase

of land has held loans and advances given to interested parties

for purchase of property is in the nature of commercial

transaction between the parties and thus, same cannot be

treated as benefit allowed to interested persons as referred to

u/s.13(3) in violation of section 13(1)(c) of the Act, and

consequently, exemption u/s.11 of the Act cannot be denied to

12 ITA Nos. 3547 to 3550/Chny/2018

the trust. The relevant findings of the Tribunal in ITA

No.1548/Mds/2015 dated 19.12.2016 are as under:-

“4. We have heard both the parties and perused the material on record. Similar issues came for consideration before this Tribunal for the AY 2010-11 in ITA No.1759/Mds/2013 and CO 15/Mds/2014. The Tribunal vide its order dated 28.10.2015 held as follows:

ITA Nos. 3547 to 3550/Chny/2018

observation of the Assessing Officer in the assessment order that the value of the land is much less than what was agreed between the parties cannot stand in the eye of law. When the assessee-Trust intended to establish a medical college for which it requires minimum 25 acres of land and the Managing Trustee has such vast area of land, nothing wrong in purchasing the land from the Managing Trustee by paying the market value. Subsequently, the assessee-Trust could not establish medical college. Therefore, the agreement was cancelled. In fact, the Managing Trustee repaid the part amount along with interest. It is not the case of the Revenue that the interest paid by the Managing Trustee is not in market rate.

ITA Nos. 3547 to 3550/Chny/2018

Managing Trustee cannot be construed as without any adequate security or without any adequate interest. Therefore, this Tribunal is of the considered opinion that the money was in fact advanced in pursuance of the agreement for sale. After cancellation of agreement, the money was returned in its entirety. Since there was delay in repayment of money received as advance for saleof the land, the Managing Trustee has also paid interest to the extent of Rs.4,06,92,078/-. Therefore, at any stretch of imagination, it cannot be said that the money was diverted for interest of the Managing Trustee. Therefore, this Tribunal is of the considered opinion that there is no violation of Section 13 of the Act.

15 ITA Nos. 3547 to 3550/Chny/2018

there is no fresh material brought before it, we are inclined to decide the issue in favour of assessee by holding that there is no violation of provisions of the section 13(1)(c) read with section 13(3) of the Act and the assessee cannot be denied exemption u/s.11 of the Act on this count.”

taken by the co-ordinate Bench, we are of the considered view

that there is no error in findings recorded by the learned CIT(A)

to arrive at conclusion that loans & advances given to

interested persons as referred to u/s.13(3) of the Act is not a

violation referred to u/s.13(1)(c) of the Act, and consequently,

benefit of exemption u/s.11 cannot be denied to the assessee

trust for its income. Hence, we are inclined to uphold findings of

the learned CIT(A) and reject grounds taken by the revenue.

assessment year 2012-13 from ground No.4 of revenue appeal

is corpus donation received by the trust of Rs.4.23 crores and

treatment of said corpus donation as income of the assessee.

The Assessing Officer has treated corpus donation as income

of the assessee solely on the ground that trust itself is

disentitled for benefit of exemption u/s.11 of the Act, because

16 ITA Nos. 3547 to 3550/Chny/2018

of violations referred to under section 13(1)(c) r.w.s 13(3) of

the Act, in respect of loans & advances given to interested

persons. The learned CIT(A) held that corpus donation received

by the assessee with specific direction is part of corpus fund of

the trust and same cannot be treated as income of the

assessee, when the trust is entitled for benefit of exemption

u/s.11 of the Act.

issue is also covered in favour of the assessee by decision of

the ITAT., Chennai in assessee’s own case for assessment

year 2011-12 in ITA No.1548/Chny/2015, where under identical

set of facts, the Tribunal held that when the assessee is

entitled for benefit of exemption u/s.11 of the Act, by virtue of

recognition of trust u/s.12AA of the Act, corpus donation cannot

be treated as income u/s.12 r.w.s 2(24)(iia) of the Income Tax

Act, 1961.

issue is also covered in favour of the assessee by decision of

the Tribunal in assessee’s own case for assessment year 2011-

12.

17 ITA Nos. 3547 to 3550/Chny/2018

on record and gone through orders of the authorities below.

We find that the Tribunal had considered an identical issue in

assessee’s own case for assessment year 2011-12 in ITA

No.1548/Chny/2015, and after considering relevant facts, the

Tribunal held that corpus donation received by the assessee

for specific purpose cannot be treated as revenue receipt and

thus, is not liable to be taxed. The relevant findings of the

Tribunal in ITA No.1548/Mds/2017 dated 19.12.2016 are as

under:-

“6.1 Regarding treatment of contributions made with thespecific direction to the assessee as income of assessee in terms of sec.12 of the Act, the Ld.CIT(A) observed that once there is a violation of provisions of the section 13(3) r.ws.13(1)(c), the provisions of the section 11 & 12 shall not operate so as to exclude the income of the trust from the total income of the previous year. According to sections 11 & 12 of the Act, the voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income of the previous year of the trust. But once, the exemption u/s.11 and 12 is denied, the assessee would not get any protection from sec.11 & 12 and the voluntary contribution would be treated as income, as per the definition of income given in sec.2(24)(iia) of the Act, accordingto which income includes the voluntary contribution receipts by a trust thereby once the exemption u/s 11& 12 of the Act is withdrawn all the receipts of the trust either by voluntary contribution or income derived from the property would be income of the Trust in a normal course and is chargeable to tax. Accordingly, the Ld.CIT(A) held that the corpus donation is chargeable to tax. Now, aggrieved, the assessee is in appeal before us.

ITA Nos. 3547 to 3550/Chny/2018

7.1 The issue for our consideration is whether the amounts received by the assessee were in the nature of voluntary donations received for specific purpose. If yes, whether the same. could be considered towards corpus of the trust. Alternatively, if the donations are not voluntarily made, then whether such donations could be considered as income chargeable to tax. The assessee has taken a plea before us that these donations are received for a specific purpose, it is a tied up grant. Sections 11, 12 and 2(24)(iia) of the Act speak of voluntary contributions. Therefore, firstly, it has to be seen whether such donations are voluntary or not. According to the dictionary meaning, an act can be said to be voluntary if it is done by free choice of once own accord, without compulsion or obligation, without valuable consideration, gratuitous, etc. There is no material on record tosuggest that such donations are given against the will of the donors or by any compulsion or under any obligation. In that sense, it can be said that the donations are voluntary. If the donations are not voluntarily made, the same fall outside the ambit of sections 11, 12 and 2(24)(iia) of the Act. Consequently, general provisions of Income-tax Act would become applicable. According to the general provisions of the Act, all receipts are not income. Donations received for specific object are to be considered as

ITA Nos. 3547 to 3550/Chny/2018

tied up fund and it is capital receipt. If the donations are made voluntarily for specific purpose, the same cannot be held as income of the assessee, since the donations were, in our opinion, given for specific purpose as tied up grant and it cannot be taxed as income.

7.2 As far as section 2(24)(iia) is concerned, this section has to be read in the context of introduction of section 12. It is significant that section 2(24)(iia) was inserted with effect from 1.4.1973 simultaneously with the present section 12, both of which were introduced from the said date by Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board circular No. 108 dated 20.3.1973 is extracted at page 1754 of Volume-I of Sampathlyengar Law of Income-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R.B. Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Born) the Hon’ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of KasturbalScindia Commission Trust (189 ITR 5) (Bom). In the present case donations being received for specific purpose, towards corpus of the trust, cannot be assessed as income of the assessee.

7.3 Being so, as seen from the above judgment, the amount received by the assessee for specific purpose would only mean that the assessee agreed to act as a trustee of a special fund received by assessee from various persons. As a result, it need not be pooled or integrated with the assessee’s normal income. The assessee is acting as an independent trustee for that amount received from various persons just as some trustee can act as a trust for more than one trust. Tied up or specific grant need not, therefore, be treated as amounts which are required

20 ITA Nos. 3547 to 3550/Chny/2018

to be considered for assessment. In other words, tied up grant received from donors for a specific purpose cannot form part of assessee’s income. In view of the above discussion, voluntary contributions in the nature of corpus fund received by the assessee cannot be brought to tax. The tied up grant or corpus fund received by the assessee should not be taxable as income of the assessee, if it is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same.

7.4 In view of the above, we are inclined to hold corpus donation received by the assessee for the specific purpose cannot be treated as revenue receipt and same be considered as capital receipt and not liable to be taxed. Accordingly, the appeal of the assessee is allowed.”

taken by the co-ordinate Bench in assessee’s own case for

assessment year 2011-12, we are of the considered view that

there is no error in the reasoning given by the learned CIT(A) to

delete additions made towards corpus donation as income of

the assessee. Hence, we are inclined to uphold findings of the

learned CIT(A) and reject ground taken by the revenue for

assessment year 2012-13.

assessment year 2012-13 and 2013-14 from ground no.5 if

revenue appeal is denial of exemption on account of advances

made for purchase of land to related parties. We find that an

21 ITA Nos. 3547 to 3550/Chny/2018

identical issue has been considered by us in assessee’s own

case for very same assessment year with reference to loans

and advances given to founder and managing trustee for

purchase of land and held that loans & advances given for

purchase of land, even if, such advance is given to persons

specified under section 13(3) is not in contravention of

provisions of section 13(1)(c) of the Act, and thus, benefit of

exemption u/s.11 cannot be denied to the assessee. The

reasons given by us in preceding paragraph no.9 for very same

assessment years shall equally apply to this ground, as well.

Therefore, for similar reasons, we are inclined to uphold

findings of the learned CIT(A) and reject ground taken by the

revenue.

ground no. 6 of revenue appeal for assessment year 2012-13 is

disallowance of interest paid on term loan availed from ICICI

bank amounting to Rs.2.2 crores. The Assessing Officer has

disallowed interest paid on term loan availed from ICICI bank

on the ground that the assessee has diverted entire term loan

to related parties and thus, interest paid on said loan is not

22 ITA Nos. 3547 to 3550/Chny/2018

allowable as deduction. It was explanation of the assessee

before the lower authorities that loans borrowed from ICICI

bank has been utilized for purchase of landed property for

purpose of trust and thus, even if, advance given to related

parties out of term loan availed from bank, since advance is for

the purpose of objects of the trust, interest paid on said loan

cannot be disallowed. The learned CIT(A) after considering

relevant facts has deleted additions made by the Assessing

Officer.

erred in deleting additions made towards disallowance of

interest paid on term loan availed from ICICI bank as

application of income even though such loan was used for

giving advances without any interest to specified persons

referred to u/s.13(3) of the Act.

submitted that when loan borrowed from bank is utilized for

purpose of objects of the trust, even if such loan is used to give

advance to interested persons specified under section 13(3) of

23 ITA Nos. 3547 to 3550/Chny/2018

the Act, no interest can be disallowed as long as such loans

and advance is for the purpose of objects of the trust.

available on record and gone through orders of the authorities

below. The learned CIT(A) has recorded categorical finding that

the assessee trust was in the process of establishing medical

college and deemed university and for this purpose, it has

availed term loan from ICICI bank for purchase of lands. The

said loan has been utilized for giving advances to various

persons including interested persons as referred to u/s.13(3)

of the Act, for purchase of land. The learned CIT(A) has

recorded further factual finding that trust has subsequently

purchased land from persons to whom loans and advances

was given. It was further noted that said property itself was

taken as collateral security for the trust to avail loan from the

bank. Therefore, he opined that there is no diversion of funds to

interested persons without charging any interest. In fact, term

loan availed from ICICI bank has been utilized for objects of

the trust of imparting education and thus, there is clear error in

the findings of the Assessing Officer that term loan availed

from ICICI bank has been diverted to give loans & advances to

24 ITA Nos. 3547 to 3550/Chny/2018

specified persons without charging interest. The facts

remained unchanged. The revenue fails to bring on record any

evidence to disprove findings of fact recorded by the learned

CIT(A). Hence, there is no diversion of interest bearing funds to

related persons without charging interest. Therefore, we are of

the considered view that there is no error or infirmity in the

reasons given by the learned CIT(A) to delete additions made

by the Assessing Officer towards disallowance of interest paid

on term loan availed from ICICI bank. Hence, we are inclined

to uphold findings of the learned CIT(A) and reject ground

taken by the revenue.

ground no.5 of revenue appeal for assessment year 2013-14 is

ad-hoc disallowance of rent paid M/s. Vinayaka Educational

Trust, a specified person referred to u/s.13(3) of the Income

Tax Act, 1961. The Assessing Officer has made ad-hoc

disallowance of Rs.3.53 crores being 10% rental payments

made to M/s. Vinayaka Educational Trust, a trust under same

management on the ground that rent payment made to

specified persons is excessive and unreasonable. The learned

25 ITA Nos. 3547 to 3550/Chny/2018

CIT(A) has deleted additions made by the Assessing Officer

on the ground that rent payment made to another trust

registered u/s.12AA of the Act, is neither directly or indirectly

benefitted person as specified u/s.13(3) of the Act, and

therefore, there is no justification or rational for invoking

provisions of section 13(1)(c) of the Act. Therefore, the learned

CIT(A) by considering relevant facts and also by following

decision of the Tribunal in assessee’s own case for assessment

year 2011-12 deleted additions made by the Assessing Officer.

erred in allowing rent payment to M/s.Vinayaka Educational

Trust, a specified person by merely following predecessor

CIT(A)’s order dated 08.07.2016, which was set aside by the

Tribunal with a direction to give finding whether any interest or

security was provided for transaction. The learned DR further

submitted that the assessee has paid huge rent and deposits to

related parties for taking premises on rent and such rent and

deposit is excessive and thus, the Assessing Officer has

recorded categorical finding that it is in violation of provisions of

26 ITA Nos. 3547 to 3550/Chny/2018

section 13(1)(c) of the Act, and accordingly, additions made by

the Assessing Officer should be upheld.

submitted that the assessee has taken premises on rent from

M/s. Vinayaka Educational Trust and such building is

admeasuring 1,09,640 sq.ft along with appurtenant land

approximately 3 acres. If we compare rent paid by the assessee

to the prevailing rent, rent paid by the assessee is very

reasonable and thus, the Assessing Officer has erred in

making ad-hoc disallowance of rent payment merely for the

reason that said transaction is between two related persons.

The learned A.R further referring to rent paid to Mrs. Arthi

Ganesh and M/s.Arthi Associates submitted that the assessee

has taken guest house on rent in Injambakkam and said

premises is fully furnished and thus, rent paid by the assessee

is reasonable when compared to prevailing market rent. The

Assessing Officer without assigning any reason has made ad-

hoc disallowance of 10% rent paid to Arthi Associates and 20%

on rent paid to Mrs.Arthi Ganesh. The learned A.R further

referring to rental advance paid to M/s.Samudra Resorts Pvt.

27 ITA Nos. 3547 to 3550/Chny/2018

Ltd. submitted that the assessee had paid rental advance Rs.2

crores and monthly rent of Rs.8,25,000/- for land admeasuring

10 acres which works to a sum of Rs.82,500/- per acre and

hence, the Assessing Officer has clearly erred in disallowing

10% rent paid to Samudra Resorts Pvt.Ltd. without bringing on

record any comparable cases of similar nature.

on record and gone through orders of the authorities below. The

assessee has taken a building on rent from M/s.Vinayaka

Educational Trust admeasuring 1,09,640 sq.ft with appurtenant

land approximately admeasuring 3 acres. The said land is

situated in a prime location. The assessee has taken building

on rent and running its entire University in the said premises at

Pallavaram. The Assessing Officer has made ad-hoc

disallowance of 10% of rent paid to above parties on the ground

that the assessee has paid excessive and unreasonable rent

to related parties. It was explanation of the assessee that when

you compare prevailing market rent in the locality where

premises are situated, then rent paid by the assessee is

reasonable and thus, the Assessing Officer has erred in making

28 ITA Nos. 3547 to 3550/Chny/2018

ad-hoc disallowance of rent only for reason that said transaction

is between related parties.

Officer in light of arguments advanced by the learned AR for the

assessee and we ourselves do not subscribe to reasons given

by the Assessing Officer for simple reason that unless the

Assessing Officer brings on record any comparable case of

similar nature, to compare rent paid by the assessee to above

parties, no ad-hoc disallowance can be made only for reason

that said transaction was between related parties. The

Assessing Officer neither given any reason why rental payment

and security deposit paid by the assessee to above parties is

excessive and unreasonable, nor brought on record any

comparable cases of similar nature. In absence of any evidence

to disprove claim of the assessee on rent and deposit paid to

the above parties, no ad-hoc disallowance can be made on

rental payment, because said transaction was between related

parties. Therefore, we are of the considered view that the

Assessing Officer has clearly erred in making ad-hoc

disallowance of rent payment to above parties. The learned

CIT(A), after considering relevant facts has rightly deleted

29 ITA Nos. 3547 to 3550/Chny/2018

additions made by the Assessing Officer. Hence, we are

inclined to uphold findings of the learned CIT(A) and reject

ground taken by the revenue.

years 2012-13 and 2013-14 are dismissed.

ITA Nos . 3549 & 3550/Chny/2018 (AY 2014-15 & 2015-16):

these two appeals filed by the Revenue for assessment years

2014-15 & 2015-16 is payment of rent and security deposit to

M/s. Vinayaka Educational Trust, rent paid to Mrs. Arthi Ganesh

& M/s.Arthi Associates and rental advance paid to M/s.

Samudra Resorts Pvt. Ltd. as violations referred to u/s.13(1)(c)

and 13(1)(d) of the Income Tax Act, 1961 and consequent

denial of exemption u/s.11 of the Act.

us in assessee’s own case for assessment year 2012-13 &

2013-14 in ITA No.3547 & 3548/Chny/2018 in light of rent paid

by the assessee to M/s.Vinayaka Educational Trust, Mrs. Arthi

Ganesh & M/s. Arthi Associates and further, rental advances

30 ITA Nos. 3547 to 3550/Chny/2018

paid to M/s. Samudra Resorts Pvt. Ltd and after considering

relevant facts, we held that rent payment and rental advance

paid to the specific persons as referred to u/s.13(3) is not in

violation of section 13(1)(c) and 13(1)(d) of the Act, and

consequently, benefit of exemption cannot be denied to the

assessee u/s.11 of the Act. The relevant findings of the Tribunal

are as under:-

“24. We have gone through reasons given by the Assessing Officer in light of arguments advanced by the learned AR for the assessee and we ourselves do not subscribe to reasons given by the Assessing Officer for simple reason that unless the Assessing Officer brings on record any comparable case of similar nature, to compare rent paid by the assessee to above parties, no ad-hoc disallowance can be made only for reason that said transaction was between related parties. The Assessing Officer neither given any reason why rental payment and security deposit paid by the assessee to above parties is excessive and unreasonable, nor brought on record any comparable cases of similar nature. In absence of any evidence to disprove claim of the assessee on rent and deposit paid to the above parties, no ad-hoc disallowance can be made on rental payment, because said transaction was between related parties. Therefore, we are of the considered view that the Assessing Officer has clearly erred in making ad-hoc disallowance of rent payment to above parties. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are

31 ITA Nos. 3547 to 3550/Chny/2018

inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue.”

taken by co-ordinate Bench in assessee’s own case for

assessment year 2012-13 & 2013-14, we are of the considered

view that the Assessing Officer has erred in holding that rent

payment to M/s.Vinayaka Educational Trust, Mrs. Arthi Ganesh

& M/s. Arthi Associates and rental advance paid to M/s.

Samudra Resorts Pvt. Ltd. is in contravention of provisions

section 13(1)(c) and 13(1)(d) of the Act, and consequently, the

Assessing Officer has clearly erred in denial of exemption

claimed by the assessee u/s.11 of the Income Tax Act, 1961.

The learned CIT(A), after considering relevant facts and also

by following predecessor CIT(A)’s order for earlier assessment

year has rightly held that rent payment made by the assessee

to above parties is not in violation of section 13(1)(c) of the Act.

Hence, we are inclined to uphold findings of the learned CIT(A)

and direct the Assessing Officer to allow exemption claimed by

the assessee u/s.11 of the Income Tax Act, 1961 for both

assessment years.

32 ITA Nos. 3547 to 3550/Chny/2018

years 2014-15 and 2015-16 are dismissed.

four assessment years are dismissed.

Order pronounced in the open court on 22nd December, 2021 Sd/- Sd/- (महावीर �संह) (जी. मंजुनाथ) (Mahavir Singh) (G. Manjunatha ) उपा�य�/ Vice-President लेखा सद'य / Accountant Member

चे)नई/Chennai, *दनांक/Dated 22nd December, 2021 DS आदेश क� ��त,ल-प अ.े-षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु/त (अपील)/CIT(A) 4. आयकर आयु/त/CIT 5. -वभागीय ��त�न3ध/DR 6. गाड� फाईल/GF.