DDIT, CHENNAI vs. M/S. PARAMASIVA NAIDU MUTHURVELRAJ EDUCATIONAL TRUST, CHENNAI

आदेश / O R D E R

PER GEORGE MATHAN , JUDICIAL MEMBER

ITA No.2005/Chny/2012 is an appeal filed by the Revenue

against the Order of the Commissioner of Income Tax (Appeals)-XII,

Chennai in ITA No.373/2011-12 dated 10.07.2012 for the assessment

ITA No.2005/CHNY/2012 :- 2 -: CO No.60/CHNY/2013

year 2009-10 and C.O No.60/Chny/2013 is a Cross-Objection filed by

the assessee.

Mr.Aroon Prasad represented on behalf of the Revenue and 2.

Mr.S.Sridhar represented on behalf of the Assessee.

issue in the Cross Objections was in respect of claiming of

depreciation, assessee being a charitable trust registered/s.12AA of the

Act. It was a submission that the issue of depreciation was squarely

covered by the decision of the Hon’ble Supreme Court in the case of

CIT-III, Pune Vs. Rajasthan & Gujarati Charitable Foundation Poona

reported in (2018)402 ITR 441(SC).

ld. Assessing Officer and the Ld.CIT(A) on this issue.

record. As it is noticed that the issue of depreciation in respect of

charitable trust is squarely covered by the decision of the Apex Court

in the case of Rajasthan & Gujarati Charitable Foundation Poona

referred to supra, the ld. Assessing Officer is directed to allow the

assessee’s claim of depreciation. Accordingly, Cross objections filed by

the assessee on this issue stands allowed.

ITA No.2005/CHNY/2012 :- 3 -: CO No.60/CHNY/2013

that the assessee is a charitable trust registered u/s.12AA of the Act.

It was a submission that in the course of assessment , it is noticed that

the assessee had given gifts to another Trust under the name of

M/s.PMR Bangaru Subbammal Educational Trust. It was a submission

that two types of gifts were given, one gift was immovable property,

and the second one was a amount of `86,44,540/-. It was a

submission that M/s.PMR Bangaru Subbammal Educational Trust was

not registered u/s.12AA of the Act during relevant assessment year. It

was a submission that consequently the ld. Assessing Officer had

denied the assessee the benefit of exemption u/s.11 of the Act in

respect of violation made under sections 13(1)(c) and 13(1)(d) of the

Act. It was a submission that advertisement expenses in respect of

political advertisement had also been made by the assessee in the

newspapers. It was a submission that the electricity bill of the

Managing Trustees, one Mr.MB Nambiar had also been paid by the

assessee-trust. It was a submission that personal expenses of the

trustees, and their family members had been incurred by the assessee

trust. It was a submission that on appeal, Ld.CIT(A) had held that the

gift of 6.5 acres of land by the assessee-trust to M/s.PMR Bangaru

Subbammal Educational Trust had been reversed by cancellation of the

Gift Deed in subsequent year and M/s.PMR Bangaru Subbammal

ITA No.2005/CHNY/2012 :- 4 -: CO No.60/CHNY/2013

Educational Trust was also having similar objects of the assessee trust,

consequently, there was no violation of provisions of the sections

13(1)(c) and 13(1)(d) of the Act. In regard to the payment of

electricity bills, the Ld.CIT(A) had held that the amounts are very small

and insignificant compared to the total volume of transactions and

hence, it cannot be viewed as violation of Sec.13(1)(c) of the Act. In

regard to advertisement in respect of political parties, the Ld.CIT(A)

accepted the contention of the assessee that the expenditure was not

a political donation or political advertisement, but an advertisement of

the institution in the newspaper ‘Dinakaran’ on the occasion of visit of

a political leader. In consequent, it cannot be said to be violation of

Sections 13(1)(c) and 13(1)(d) of the Act. It was a submission that

the order of the CIT(Appeals) being clearly in violation of provisions of

the sections 13(1)(c) and 13(1)(d) of the Act. It was a submission that

the same was liable to reversed on this issue and assessee denied the

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

The ld.A.R placed before us a copy of decision of the Hon’ble

Karnataka High Court in the case of CIT Vs. Fr.Mullers Charitable

Institutions reported in [2014] 363 ITR 230(Karnataka) wherein it had

been held that only income from investment or deposit which has been

made in violation of sec.11(5) of the Act is liable to be taxed and the

ITA No.2005/CHNY/2012 :- 5 -: CO No.60/CHNY/2013

violation u/s.13(1)(d) of the Act does not tantamount to denial of

exemption u/s.11 on total income of assessee-trust. The ld.A.R also

placed reliance upon the judgmenet of Hon’ble Madras High Court in

the case of CIT Vs. Working women’s Forum reported in [2014] 365

ITR 353(Mad.) wherein it had been held that the Tribunal was justified

in holding that in case of a trust registered u/s.12AA of the Act, only

such part of income which is violative of sec.13(1)(d) of the Act can be

brought to tax at maximum marginal rate and entirety of income

cannot be denied exemption u/s.11 of the Act. It was a submission

that the land had been returned by cancelling the Gift Deeds and in

respect of the loans, which had been given the maximum that could be

disallowed was the notional interest, in view of the decision of Hon’ble

Madras High Court in the case of CIT Vs. Working women’s Forum

reported to supra. It was a further submission that perusal of the

calculation of the exemption as given in page-17 of the order of the

CIT(Appeals) would show that the actual application during the year

being much higher, the disallowance, if any would not make any dent

in so far as it would fall within the 15% exemption available to the

assessee.

order of the CIT(Appeals) shows that it is an undisputed fact that

electricity bill in respect of trustee has been paid by the assessee-trust.

ITA No.2005/CHNY/2012 :- 6 -: CO No.60/CHNY/2013

That it is too small amount compared to total transactions of the

assessee is not the issue, as far as the provisions of the section 13 are

concerned. It is also an undisputed fact that during relevant

assessment year, the land had been made available to M/s.PMR

Bangaru Subbammal Educational Trust, which is a Trust that does not

have registration u/s.12AA of the Act. It is also an undisputed fact

that the assessee trust has given loans, which are interest free to

M/s.PMR Bangaru Subbammal Educational Trust, that the objects of

the assessee-trust and that of M/s.PMR Bangaru Subbammal

Educational Trust are identical, would not make M/s.PMR Bangaru

Subbammal Educational Trust as having registration u/s.12AA of the

Act. M/s.PMR Bangaru Subbammal Educational Trust must on its own

independent status claim and have the registration u/s.12AA of the

Act. In the absence of such registration, dealing with such an

unregistered trust would affect the exemption available to the

assessee. A perusal of provisions of the section 13(2) of the Act shows

that without prejudice to the provisions in clause (c) & (d) of sub-

section (1) of Section 13, the income of the property of the trust is

deemed to have been used for the benefit of a person referred to in

sub-section (3), in clause (g), if any income or the property of the

Trust or institution is diverted during the previous year in favour of any

person referred to in sub-section(3) (regarding electricity bill

ITA No.2005/CHNY/2012 :- 7 -: CO No.60/CHNY/2013

payment) and in clause (h), if any funds of the trust or institution are,

or continue to remain, invested for any period during the previous year

------ in which a person referred to sub-section(3) has substantial

interest ( the loan given to M/s.PMR Bangaru Subbammal Educational

Trust where the Managing Trustee is an interested person with

substantial interest) and clause (b), if any land --- of the Trust or

institution ---- for any period during the previous year without

adequate rent or other compensation (regarding gifting of the land,

which has subsequently been cancelled, to M/s.PMR Bangaru

Subbammal Educational Trust where the Managing trustee of the Trust

is an interested person with substantial interest) In such cases, where

violation of sub-section (2) of section 13 takes place the benefit,

directly or indirectly, to any person referred to sub-section(3) of

Section 13, then the First provisions of section 13(1) clearly states that

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, which clearly shows that provisions of the section-11

and section-12 are no more available in such cases. This being so, we

are of the view that the ld. Assessing Officer was right in denying the

benefit of section-11 in respect of the income of assessee as there has

been violation of the provisions of the sections 13(1)(c) and 13(1)(d)

read with section 13(2) of the Act. In the circumstances, the order of

ITA No.2005/CHNY/2012 :- 8 -: CO No.60/CHNY/2013

the CIT(Appeals) on this issue stands reversed and the order of the

ld. Assessing Officer is restored.

Cross Objections filed by the assessee is allowed.

Order pronounced in the open court after conclusion of hearing on 09th July, 2018, at Chennai.

Sd/- Sd/- (अ�ाहमपी.जॉज�) ( जॉज� माथन) (GEORGE MATHAN) ( ABRAHAM P GEORGE) लेखा सद�य /ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated: 09th July, 2018. K S Sundaram

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF