THE COMMISSIONER OF INCOME TAX (EXEMPTION) vs. CMR JNANADHARA TRUST

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HC-KAR NC: 2026:KHC:10978-DB ITA No. 142 of 2025 C/W ITA No. 143 of 2025 ITA No. 144 of 2025

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF FEBRUARY, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND

INCOME TAX APPEAL No. 142 OF 2025 C/W INCOME TAX APPEAL No. 143 OF 2025 INCOME TAX APPEAL No. 144 OF 2025

IN ITA No. 142/2025

BETWEEN:

Digitally signed by VINUTHA B S Location: High Court of Karnataka

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6TH A MAIN, 2ND BLOCK, HRBR LAYOUT, BENGALURU 560043, REP. BY ITS SECRETARY. …RESPONDENT (BY SRI A. SHANKAR, SENIOR ADVOCATE FOR SRI NARENDRA KUMAR JAYANTILAL JAIN, ADVOCATE)

THIS ITA/ INCOME TAX APPEAL UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE

IN ITA No. 290/BANG/2024 DATED 03.12.2024 FOR THE ASSESSMENT YEARS 2017-18 ANNEXURE-A.

IN ITA No. 143/2025

BETWEEN:

AND:

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HC-KAR NC: 2026:KHC:10978-DB ITA No. 142 of 2025 C/W ITA No. 143 of 2025 ITA No. 144 of 2025

BENGALURU 560043, REPRESENTED BY ITS SECRETARY. ...RESPONDENT (BY SRI A. SHANKAR, SENIOR ADVOCATE FOR SRI NARENDRA KUMAR JAYANTILAL JAIN, ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA No.291/BANG/2024 DATED 03.12.2024 FOR ASSESSMENT YEAR 2018-19 ANNEXURE -A CONFIRM THE ODER PASSED BY THE ASSISTANT COMMMISSIONER OF INCOME TAX (EXEMPTIONS), BENGALURU.

IN ITA No. 144/2025

BETWEEN:

AND:

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HC-KAR NC: 2026:KHC:10978-DB ITA No. 142 of 2025 C/W ITA No. 143 of 2025 ITA No. 144 of 2025

BENGALURU 560043, REPRESENTED BY ITS SECRETARY. ...RESPONDENT (BY SRI A. SHANKAR, SENIOR ADVOCATE FOR SRI NARENDRA KUMAR JAYANTILAL JAIN, ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA No.292/BANG/2024 DATED 03.12.2024 FOR ASSESSMENT YEAR 2021-22 ANNEXURE -A CONFIRM THE ODER PASSED BY THE ASSISTANT COMMMISSIONER OF INCOME TAX (EXEMPTIONS), BENGALURU.

THESE APPEALS COMING ON FOR ADMISSION THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND

ORAL JUDGMENT

(PER: HON'BLE MR. JUSTICE K. V. ARAVIND)

Heard Sri.Aravind V.Chavan, learned Senior Standing counsel for the appellants and Sri. A. Shankar, learned Senior counsel for Sri. Narendra Kumar Jayantilal Jain, learned counsel for the respondent. 2. These appeals are filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’), assailing the common order dated 03.12.2024 passed by the

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Income Tax Appellate Tribunal, “A” Bench, Bangalore (for short, ‘the Tribunal’) in ITA Nos.290, 291 and 292/Bang/2024, pertaining to the Assessment Years 2017-18, 2018-19 and 2021-22, respectively. 2.1 The Tribunal has disposed of the appeals pertaining to the aforesaid three assessment years by a common order. These appeals were heard together and are being disposed of by this common order, as the facts involved are identical and common submissions have been addressed by the learned counsel appearing for both parties. 3. Brief facts of the case are that the assessee is a Trust registered under Section 12A of the Act and had filed its returns of income claiming exemption under Section 11 of the Act. The Assessing Officer issued notice under Section 143(2) of the Act and, upon scrutiny, examined the transactions/payments made to certain concerns in which the trustees and/or their relatives had substantial interest. 3.1 The Assessing Officer held that the payments made to M/s. Edufice Education Services Pvt. Ltd., M/s. CMR Education and Consultancy Services and M/s. Jaista Developers and

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Constructions (P) Ltd. were either excessive or unreasonable. It was further held that such excessive and unreasonable payments amounted to diversion of the income of the Trust and were in violation of Section 13(1)(c) of the Act. Accordingly, the assessments were completed on 30.12.2019 for the Assessment Year 2017-18, on 10.04.2021 for the Assessment Year 2018-19 and on 28.12.2022 for the Assessment Year 2021-22. 3.2 Aggrieved by the said orders, the assessee preferred appeals before the The Commissioner of Income Tax (Appeals) [for short, ‘CIT(A)’], National Faceless Appeal Centre (‘NFAC’). The CIT(A) by following the earlier order of the Tribunal involving an identical set of facts, transactions and concerns, allowed the appeals by orders dated 17.05.2023 for the Assessment Year 2017-18, 18.05.2023 for the Assessment Year 2018-19 and 15.06.2023 for the Assessment Year 2021-22. 3.3 Aggrieved by the orders passed by the CIT(A), the Revenue preferred appeals before the Tribunal. The Tribunal, under the impugned common order, recorded that for the Assessment Years 2014-15 and 2015-16, involving identical

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facts, the Assessing Officer had not invoked Section 13(1)(c) of the Act in the assessment orders passed under Section 143(3) of the Act. The Tribunal further recorded that there was no change either in the facts or in the legal position so as to take a different view for the assessment years under consideration. Accordingly, the Tribunal rejected the appeals filed by the Revenue. 4. Sri Arvind V. Chavan, learned Senior Standing Counsel appearing for the appellants–Revenue, submits that, in the course of the scrutiny assessment, the Assessing Officer examined and compared the accounts of the concerned entities and found that the said concerns are wholly controlled by the trustees of the assessee–Trust in their capacity as Directors. 4.1 It is further submitted that the said concerns have no independent business activity apart from the revenue receipts received from the assessee–Trust. Learned counsel would contend that the concerns do not possess any requisite expertise to render assistance to the Trust and that the payments made to them are disproportionate and not commensurate with the services allegedly rendered.

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4.2 Learned counsel further submits that the said concerns have reflected abnormal profit margins, going up to 85%, which, according to him, is inconceivable in any legitimate line of business. It is contended that these entities have been created solely for the purpose of diverting the funds of the Trust into the hands of the Directors, who are none other than the trustees of the assessee–Trust. 4.3 It is further submitted that there is no element of commercial expediency in the payments made to the said concerns, either with regard to the nature or the extent of services allegedly rendered. Learned counsel would contend that the Tribunal, without independently examining the reasons assigned by the Assessing Officer, has merely followed its earlier orders and thereby erroneously deleted the additions made in the assessment. 5. Sri A. Shankar, learned Senior Counsel appearing for Sri Narendra Kumar Jayantilal, learned counsel for the respondent– assessee, submits that it is incorrect to contend that the said entities derived income exclusively from the assessee–Trust. It is submitted that the entities are engaged in independent

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business activities apart from their transactions with the Trust. Learned Senior Counsel further submits that the existence of the entities, the purpose of the payments and the rendering of services by the concerns are not in dispute. It is contended that a higher profit margin, by itself, cannot constitute a ground to question the commercial expediency of the transactions or to invoke Section 13(1)(c) of the Act. 5.1 It is further submitted that, on identical facts, the Assessing Officer, in the assessment proceedings concluded under Section 143(3) of the Act, after examining the relevant details, had accepted the payments made without invoking Section 13(1)(c) of the Act for the Assessment Years 2014-15 and 2017-18. It is therefore contended that, in the absence of any change either in the factual matrix or in the legal position, it is not open to the Assessing Officer to take a divergent view for the assessment years under consideration. 6. We have considered the submission of learned counsel for the parties and perused the appeal papers.

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(3) of Section 13 of the Act. 7.1 Before adverting to the rival contentions, it would be apposite to extract the relevant statutory provisions: "13(1) (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-

(1) 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) "[, such part of income as referred to in sub-clauses (1) and (ii)):" "13(3) The persons referred to in clause (c) of sub-section (1) and sub-section(2) the following, namely:-

(a) the author of the trust or the founder of the institution62,

(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];

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(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." 7.2 In view of the aforesaid provisions, where any concern in which the persons referred to in clauses (a), (b), (c), (cc) and (d) of 13(3), have a substantial interest is involved, the embargo contained under Section 13(1)(c) of the Act would stand attracted. 7.3 Section 13(1)(c) mandates that, in the case of a Trust, if any part of its income or property is applied, directly or indirectly, for the benefit of the persons referred to in sub- section (3), such part of the income, as contemplated under the relevant sub-clauses, would not be eligible for exemption and is liable to be disallowed. 7.4 Section 13(1)(c) of the Act disallows application of income to concerns referred to in sub-section (3) only where such application results in a direct or indirect benefit to the

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persons specified therein. It does not follow that every transaction with a concern in which such persons have interest would automatically attract the rigour of Section 13(1)(c). 8. In the present case, the payments have been made to related concerns in the course of carrying out the activities of the Trust. The genuineness of the said concerns and the nature of their activities have not been doubted by the Assessing Officer. The disallowance has been sought to be made by invoking Section 13(1)(c) primarily on the ground that the concerns have earned higher profits, as reflected in their statements of profit and loss. 9. It is also contended that the concerns have paid higher remuneration to their Directors. However, there is no comparative material placed on record to demonstrate that such remuneration is excessive or unreasonable having regard to the services rendered. On the contrary, the corresponding expenditure reflected against the revenue from operations indicates that the concerns are carrying on substantive activities.

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Tribunal, therefore, was justified in rejecting the appeals filed by the Revenue, both on a proper interpretation of Section 13(1)(c) of the Act and on the ground of consistency. 13. We do not find that any substantial question of law arises for consideration in these appeals. Accordingly, the appeals stand dismissed.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (K. V. ARAVIND) JUDGE

VBS List No.: 1 Sl No.: 23