DCIT, (EXEMPTIONS), CIRCLE, CHENNAI vs. M/S. JEPPIAAR EDUCATIONAL TRUST, CHENNAI

आदेश / O R D E R

PER GEORGE MATHAN, JUDICIAL MEMBER:

“1. The order of the ld. CIT(A) is contrary to the law and facts of the case.

2. The ld.CIT(A) erred in hlding that exemption u/s.11 cannot be denied while interest bearing funds are diverted to specified persons u/s.13(3) of the Income Tax Act, 1961 namely M/s.Holy Satellite Town Ltd., and M/s.Jet Associates without charging any interest which is in violation of provisions of section 13(1)(c) r.w.s.13(2)(a) of the Income Tax Act, 1961. 2.1 On the facts and circumstances of the case, the ld.CIT(A) has erred in holding that there is no case for making a disallowance in respect of interest amounting to Rs.4,82,10,602/- without appreciating the fact that the transactions are not genuine business transactions but only intended to benefit the trustees/other concerns. 2.2. The ld.CIT(A) erred by relying on the I.T.A.T orders passed for earlier assessment years without noting that the orders relied upon have not been accepted by the department and appeals have been filed before the Hon’ble Madras High Court and the issue has not become final.

3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer may be restored.”

For the assessment year 2009-10 in Revenue’s Appeal in ITA No.86/Mds./2013 vide order dated 22.04.2014, the Co-ordinate Bench of the Tribunal in assessee’s own case has categorically held at para-5, the relevant portion as follows:-

“In its earlier orders, the Tribunal has consistently held that the transactions the assessee had with M/s.Holy Satellite Town Ltd., and M/s.Jet Associates are business transactions and the payments made by the assessee-trust are against supply of goods and rendering of services. When the character of payments are held to be in the nature of business transactions and for valid consideration, it is not possible for the Tribunal to hold a different view that the payments must be treated as indirectly diverted by the assessee. It is also necessary to take into consideration the argument of the learned Chartered Accountant appearing for the assessee that the quantum of supply of goods and services availed by the assessee-trust from those concerns have increased manifold and the increase in the payments made to those concerns are only the reflection of increase in the quantum of supply of goods and services. Therefore, we find that this appeal has to be decided by following the binding decisions of the Co-ordinate Benches rendered for the earlier assessment years.”

This has been followed by the decision of Co-ordinate Bench of the Tribunal in assessee’s own case for the assessment years 2001-02 to 2007-08 in 1334, 1591 to 1595/Mds./2010 vide order dated 15.06.2011 wherein it has been held as follows:-

“35.2. The assessee-trust had made certain payments to M/s. Holy Satellite Town Ltd. The payments were made for the supply of ready mix concrete for construction of assessee's buildings. M/s. Holy Satellite Town Ltd. is an associate concern coming within the purview of sec.13(3). The Assessing Officer and the Commissioner of Income-tax (Appeals) held that the payments were made by the assessee-trust to the said company, :- 45 -: ITA 1333, 1334 etc & CO 116 to 120/10 even when balance of amounts are still recoverable from that company. It is the case of the lower authorities that when huge balances are outstanding from M/s. Holy Satellite Town Ltd., there was no justification for the assessee to make further payments in favour of that company. It is also the finding of the lower authorities that M/s. Holy Satellite Town Ltd. has supplied ready mix concrete not only to the assessee-trust but also to outsiders. It is, in these facts and circumstances of the case, that the lower authorities have held that the advances made by the assessee to M/s. Holy Satellite Town Ltd. were in the nature of deposits made in contravention of sec.13(1)(d).

35.3. We considered the issue in a detailed manner. It is a fact on record as well as reinforced by the observations of the lower authorities that M/s. Holy Satellite Town Ltd. is engaged in the business of ready mix concrete and the said company is supplying the entire quantity of ready mix concrete required by the assessee-trust for constructing its buildings. The case of the lower authorities is that M/s. Holy Satellite Town Ltd. is supplying ready mix concrete to outside parties also. But the most important question to be looked into, is whether the assessee-trust has purchased ready mix concrete from any party other than M/s. Holy Satellite Town Ltd.. The answer is no. The assessee is purchasing ready mix concrete only from M/s. Holy Satellite Town Ltd. It may be selling outsiders when surplus ready mix concrete is available occasionally. That fact does not dilute the business relationship between the assessee-trust and M/s. Holy Satellite Town Ltd.

35.4. The contention of the assessee-trust is that as the assessee is constructing buildings and campuses for housing its educational institutions at a large scale and therefore necessary to ensure uninterrupted supply of ready mix concrete. It is for that purpose according to the assessee, advances are given to M/s. Holy Satellite Town Ltd..

35.5. It is also to be seen that M/s. Holy Satellite Town Ltd. is supplying ready mix concrete to the assessee-trust, by and large at the rate lower than the open market rate.

35.6. When these crucial facts are considered together, and the normal conclusion arrived at is that the relation between the assessee-trust and M/s. Holy Satellite Town Ltd. is business :- 47 -: ITA 1333, 1334 etc & CO 116 to 120/10 relation. The corollary of this finding is that the account of M/s. Holy Satellite Town Ltd. maintained in the accounts of the assessee-trust is a running business account. These basic characteristics are not changed only for the reason that M/s. Holy Satellite Town Ltd. is an entity coming under sec.13(3).”