Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI DUVVURU RL REDDY
आदेश /O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
These appeals filed by the Revenue are directed against the common order of the CIT(Appeals) dated 8.7.2016 for the - - 2 ITA 2857 & 2858/16 assessment years 2012-13 and 2013-14.
The grounds raised by the Revenue for the assessment year 2012-13 in are as follows:
“2. The ld. CIT(A) erred in directing the AO to allow exemption u/s.11 of the I.T.Act as there is no violation u/s.13(1)(c) of the Act. 2.1 The ld. CIT(A) failed to adjudicate the issue regarding purchase of land measuring 4.49 crores of land worth ₹ 4 crores at Zamin Pallavaram from M/s. VGS (P) Ltd. at a cost of ₹ 13.57 crores.
3. The ld. CIT(A) erred in holding that interest has been remitted at 14% for the advance of ₹ 2 crores paid to VGS Estates for the property at Thalambur and there is no violation u/s.13(1)(c of the I.T. Act. 3.1 The ld. CIT(A) failed to observe that the assessee has not mentioned this advance in the Audit Report in Form 10B dated 22.8.2012 though this amount was outstanding. 3.2 The ld. CIT(A) ought to have appreciated that in the ledger account produced by VGS Estates, the interest amount was shown only as “Interest Payable” and no “Interest Receivable” was reflected in assessee’s books.
4. The ld. CIT(A) erred in holding that the Trust is eligible for exemption u/s.11 of the I.T. Act and there was no violation u/s.13(1)(c) of the I.T. Act in respect of amount paid to Managing Trustee for purchase of land at Manjakaranai. 4.1 The ld. CIT(A) erred in holding that the said property itself
- - 3 ITA 2857 & 2858/16 was taken as collateral security for the Trust and hence cannot be treated as violation of Section 13(1)(c) of the I.T. Act. 4.2 The ld. CIT(A) ought to have appreciated that the land was not mortgaged with the Trust in the purported ‘agreement to sale’ entered. 4.3 The ld. CIT(A) failed to observe that no interest on the amount has been received by the assessee during the A.Y. 2012-13. 4.4 The ld. CIT(A) ought to have appreciated the fact that the trust was very much aware that there was a long pending dispute before the Supreme Court regarding setting up of the Medical College in the impugned land at the time of entering into an agreement for sale. 4.5 The ld. CIT(A) failed to appreciate the fact that even after cancellation of the agreement for sale, the managing trustee continued to hold the Trust funds and did not return the entire advance on the date of cancellation of the agreement. 4.6 The Department has not accepted the decision of the Hon’ble ITAT in dated 28.10.2015, which was relied on by the ld. CIT(A)
5. The ld. CIT(A) erred in holding that advances made by the Trust to the concerns in which the trustees are interested are not attracted by the provisions of Sec.13(1)(d) r.w. Sec.11(5) of the I.T. Act. 5.1 The ld. CIT(A) failed to appreciate that the interest amount subsequently purported to be paid to the assessee trust fortifies that the amount involved is only an investment.
6. The ld. CIT(A) failed to appreciate that the Trust incurred interest expenditure to the extent of ₹ 2.02 crores on the term
- - 4 ITA 2857 & 2858/16 loan availed from ICICI Bank, but the Trust had chosen to extend interest free advances to the interested persons specified in Sec.13(3) of the Act. 6.1 The ld. CIT(A) erred in holding that there is no loss to the Trust as subsequent to the assessment proceedings, the loss of interest has been compensated by the Managing Trustee. 6.2 The ld. CIT(A) failed to observe that such interest payment was not mandated in any of agreements with the interested persons. 6.3 The ld. CIT(A) erred in computing the combined net balance to arrive at the interest received by the trust from the managing trustee was more than the balance standing against the individual accounts and that hence there was no violation u/s.13(1)(c) of the I.T. Act. 6.4 The ld. CIT(A) ought to have appreciated that subsequent payment of interest by the managing trustee to the trust would in no way help the assessee since it was not mandated in the agreement.
7. 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 in kind when the provisions of Sec.13(1)(c) and 13(1)(d) are violated.
8. The ld. CIT(A) ought to have appreciated that for the A.Y. 2011-12 in assessee’s own case, the ld. CIT(A) confirmed the order of the AO in similar issues in dated 9.3.2015 and the Hon’ble ITAT in ITA No.1548/MDS/2015 dated 6.7.2016 has dismissed the appeal filed by the assessee in limine. Thus the issues have reached finality.”
- - 5 ITA 2857 & 2858/16 2.1 The grounds raised by the Revenue for the assessment year 2013-14 in are as follows:
The order of the learned CIT(A) s contrary to the law and facts of the case.
2. The Id CIT(A) erred in holding that the Trust is eligible for exemption u/s.l1 of the I.T. Act and there was no violation u/s.13(l)(c) of the I.T.Act in respect of amount paid to Managing Trustee for purchase of land. 2.1 The Id CIT(A) erred in holding that the AO has not found out the guideline value of the property. 2.2 The Id. CIT (A) ought to have appreciated that the AO in para No.6.2 of his order clearly spelt out that the purchase cost of Rs.23,30,80,000/- is above the guideline value. 2.3. The Id. CIT (A) failed to observe that the issue exists from the A.Y. 2010-11 onwards and the AO has referred this at para No.12.2 of his order. 3. The Id CIT(A) erred in holding that the AO has not made out a reason for invoking provisions of Section 13(l)(c )of the IT. Act in respect of payment made to M/s. Vinayaka Educational Trust. 3.1 The Id. CIT (A) failed to appreciate that the AO in his order mentioned that there is no interest and security provided in the above transaction.
- - 6 ITA 2857 & 2858/16
4. The Id CIT(A) erred in holding that there is no violation of Section 13(1)(c ) ni respect of advance of Rs.2.50 crores given to M/s. VGS Estates. 4.1 The Id. CIT (A) ought to have appreciated that Ms. Arthi Genesan w/o of the Managing Trustee is the Director of the Company and the assessee failed to submd such detail in the Audit Report in Form lOB dated 22.8.2012 though this amount was outstanding.
5. The Id CIT(A) erred in holding that advances made by the Trust to the concerns in which the trustees are interested are not attracted by the provisions of Sec.13(1)(d) r.w. Sec.11(5) of the IT. Act. 5.1 The Id. CIT (A) failed to appreciate that the interest amount subsequently purported to be paid to the assessee trust fortifies that the amount involved is only an investment. 6. The Id. CIT (A) ought to have appreciated that for the A.Y. 2011-12 in assessee’s own case, the Id. CIT (A) confirmed the order of the AO on similar issues in dated 9.3.2015 and the Hon’ble ITAT in ITA No.1548/MDS/2015 dated 06.07.2015 has dismissed the appeal filed by the assessee in I/mine. Thus the issues have reached finality.
- - 7 ITA 2857 & 2858/16
The facts of the case in respect of the issue relating to the addition on account of interest on advances purported to be diverted to interested parties worked out by the AO amounting to ₹ 2,07,55,200/- for the A.Y. 2012-13, are that the AO observed that during the year under consideration, there was an opening balance of ₹ 16.91 crores lent to its Founder and Managing Trustee as also ₹ 1.44 crores outstanding with M/s. Arti Associates and 3.5 crores for the Thalambur property respectively. According to the AO the instant Trust had paid back interest calculated at the rate of 10% on higher interest bearing term loans of ₹ 16,46,15,520/- borrowed from ICICI Bank and therefore the differential between the lower rate of interest of repayment by the assessee trust vis-à-vis the higher interest rate bearing monies borrowed from ICICI Bank advanced to the assessee, meant diversion of funds to such interested persons in terms of Sec.13(3) of the Act and caught within the mischief of Sec.13(1)(c) of the Act viz., Dr. Ishari Ganesh, the Managing Trustee of the assessee Trust and Arti Associates (wherein the wife of the Managing Trustee held 95% of shares) which clearly amounted to violation of sec.13(2) r.w.sec.13(3) and caught
- - 8 ITA 2857 & 2858/16 within the mischief of sec.13(1)(c) of the Act. The AO, further, observed that since the interest on the advance for the proposed purchase of the said land at Manjakaranai dated back to the initial date of advance, due to the long time lag involved, such advance lost its character as an advance and partook the character of investment and since such investments again construed by the AO to be in modes other than modes authorized / specified in sec.11(5) of the Act, the assesse therefore also violated the provisions of sec.11(5) and was therefore caught within the mischief of provisions of sec.13(1)(d) too, whereby according to the AO, exemption u/s.11 was rendered inoperative and therefore by virtue of sec.13(8) any income of the trust including corpus donation etc. which was otherwise exempt u/s.11(1)(d) became taxable at the maximum marginal rate.
The CIT(Appeals) observed that as the said property was itself taken as collateral security for the trust, it could not be said to be a violation of the provision of sec.13(2)(a) of the Act, which section evidently, is not a blanket provision entailing provision
- - 9 ITA 2857 & 2858/16 from dealing with interested parties, since, it has exceptions provided in the provision itself whereby any income of the Trust could be lent to any interested/related person specified in sec.13(3) of the Act with either adequate security or adequate interest or both, as it was in the instant case and therefore, could not be treated as violation of sec.13(1)(c) r.w.sec.13(2)(a) and 13(3) of the Act as contended by the AO leading him to disallow the entire amount and added back the same to the total income of the assessee to be subjected to maximum marginal rate. Accordingly, the CIT(Appeals) did not agree with the AO’s action in treating the advances for property outstanding as on 31.3.2012 including the closing balance of ₹ 7,79,00,000/- and treating the same as loan made to interested persons in violation of sec.13(1)(c) r.w.sec.13(2) and 13(3) of the Act in relation to the Manjakaranai property, which from the facts of the case and the material on record clearly appears to be advance made of an amount of ₹ 16.91 crores and wherefrom subsequently an amount of ₹ 9.12 crores was duly and undisputedly refunded by way of repayment subsequent to the cancellation of agreement for sale dated 3.10.2011 as stated earlier leaving a closing
10 - - ITA 2857 & 2858/16 balance of ₹ 7,79,00,000/- i.e. (₹ 16,91,00,000 – ₹ 9,12,00,000 = ₹ 7,79,00,000) as on 31.3.2012 for which also the assessee Trust was adequately compensated and secured.
4.1 According to the CIT(Appeals), as to the issue whether the interest paid by the Managing Trustee to the assessee trust is adequate or not it is seen that the total compensation and interest received by the assessee trust from the managing trustee as per detailed working from 1.4.2011 to 31.3.2012 relating to the AYs in appeal is as under: a) Compensation received for cancelling the agreement ₹ 25,00,000 ₹ 20,00,000 b) Amount forfeited by the Managing Trustee ₹ 2,81,81,993 c) Interest paid by Managing Trustee (for the period upto 31/03/2012) d) Interest paid by Managing Trustee on 31/03/2013 (for the period from 01/04/2012 to 31/03/2013 ₹ 80,10,085 ₹ 4,06,92,078 Total 4.2 Therefore, according to the CIT(Appeals), the assessee trust, on account of advancing the above amounts to the Managing Trustee, in addition to the principle amount, had received a sum of ₹ 4,06,92,078/-, in the form of compensation and interest. In other words, the moment the sale agreement
11 - - ITA 2857 & 2858/16 was cancelled, the entire amount was treated as loan and the Managing Trustee repaid the entire amount with suitable compensation and interest. Thus, the CIT(Appeals) observed that it cannot be said that the transaction was without any consideration. As to whether the above consideration is adequate or not, the AO in her order noted that the assessee trust advanced a sum of ₹ 16.91 crores as on 31.3.2011, out of which amounts aforesaid was received back on cancelling the agreement on 3.10.2011 and thereafter leaving a closing debit balance of ₹ 7.79 crores as on 31.3.2012. However, it is noticed by the CIT(Appeals) that in addition to the above land advance transaction with the Managing Trustee there were other financial transactions with Dr. Ishari K. Ganesh (shown as individual account), M/s. Vels Holdings and Investment P Ltd., Ms. Aarthi and M/s.Aarthi Associates P. Ltd. There were always positive (credit) balances in these accounts i.e. the assessee trust always owed substantial amounts to these persons. The outstanding credit balances repayable to these persons at the end of the financial year 2011-12 are ₹ 1,15,00,000/-.
12 - - ITA 2857 & 2858/16 4.3 Though the AO treated the advance for purchase of land from the Managing Trustee as a loan transaction as violation of sec.13(1)(c) of the Act, she has not taken the other transactions with the trustees / their related persons, especially where the assessee trust received substantial amounts, and neither has she considered the transactions with Dr. Ishari Ganesh (at individual level), M/s. Vels Holdings & Investment P. Ltd., Ms.
Aarthi and M/s. Aarthi Associates P. Ltd., where there are substantial credit balances.
4.4 However, the CIT(Appeals) observed that the assessee trust did not go for squaring up or netting off these transactions.
Instead the assessee showed these transactions separately and independently, in the names of Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. in order to keep track and for better understanding of the affairs of different entities of the group. Hence, there was a separate debit balance appearing in the name of “land advance account” and credit balances in the names of Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. Therefore, the assessee’s explanation that the transactions and the 13 - - ITA 2857 & 2858/16 amounts in each account were shown separately, instead of squaring-up/netting off, only in order to facilitate clear understanding and to track such transactions, could be accepted as logical and reasonable, particularly in the context of the facts and circumstances obtained in the instant case.
4.5 Further, the ledger extracts of land advance account, Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. etc, as on 31.3.2012 and 31.3.2013, were called for and perused during the course of appellate proceedings by the CIT(Appeals). Apart from the net opening balance and the closing balances as on 1.4.2011 / 1.4.2012 and 31.3.2012 / 31/12/2013 respectively the combined net balances (i.e. balances of land advance account, Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. (combined together) were examined on daily basis and observed by the CIT(Appeals) that the total (actual) interest received by the assessee from the land advance account was greater than the interest worked-out on the total combined balance standing against these three names combined together. Thus, the assessee trust is more benefitted from these transactions rather
14 - - ITA 2857 & 2858/16 than the other way round as contended by the AO. The consolidated amounts due to/from land advance account of Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. and the net combined balances and the chargeable interest @ 10% per annum worked out in detail.
4.6 According to the CIT(Appeals), the total amount of interest including the compensation of ₹ 25,00,000/- and amount forfeited of ₹ 20,00,000/-(which appears to have been ignored by the AO in her working) received by the assessee trust from the Managing Trustee, is as under: a) Compensation received for cancelling the agreement ₹ 25,00,000 ₹ 20,00,000 b) Amount (right) forfeited by the Managing Trustee ₹ 2,81,81,993 c) Interest paid by Managing Trustee on 1.4.2012 for the period upto 31/03/2012) d) Interest paid by Managing Trustee on 31/03/2013 (for the period from 01/04/2012 to 31/03/2013 ₹ 80,10,085 Total compensation/interest received from Dr. Ganesh ₹ 4,06,92,078 4.7 From the above figures, uncontroverted by the respective AO/s, the CIT(Appeals) observed that the assessee trust received a sum of ₹ 4,06,92,078/- by sway of interest and compensation as against the logically chargeable interest of 15 - - ITA 2857 & 2858/16 ₹3,27,18,543/- being the interest calculated @ 10% per annum, the rate of interest at which the assessee trust borrowed the amounts from the financial institutions including ICICI and thus, the assessee trust was in fact benefitted by an extra sum (interest) of ₹ 79,73,535/- (i.e. ₹ 4,06,92,078 – ₹ 3,27,18,543). Even if the credit balances standing in the names of Dr. Ishari K. Ganesh (individual account), M/s. Vels Holdings and Investment P Ltd. are not considered for the purpose of charging interest on the land advances given to the Managing Trustee, the total interest would work out to : a) Interest to be paid by Managing Trustee ₹ 3,16,15,945 for the period upto 31.3.2012 b) Interest to be paid by Managing Trustee for the period from 1.4.2012 to 31.3.2013 ₹ 92,06,989 ₹ 4,08,22,934 Total 4.8 According to the CIT(Appeals), even though the AO has relied on the case of Sri Pongalia Jain Swetambar Mandir v. CIT (168 ITR 516), Raj., wherein it has been stated that for the purpose of determination of adequate rate of interest for the purpose of sec.13(2)(a) the same could be considered adequate only if it is equal to the rate of interest paid by banks on deposit
16 - - ITA 2857 & 2858/16 and eventhough, accordingly for the year under consideration, the AO has herself stated that the then prevailing bank deposit rate of interest was 10%, the AO has for some inexplicable and unspecified reason, applied a rate of 12% payable by the trust’ and calculated as under which as already pointed, was over and above the repayment of ₹ 3,86,92,077/- inclusive of interest calculated and levied by the Managing Partner suo moto at 10%/12%/14% on diminishing balances compensated to the assessee and therefore there was no question of levying additional differential interest of (2% i.e. (12% - 10%) worked out by the AO, totaling to ₹ 2,07,55,200/- reduced from the assessee’s allowable expenditure as under : “₹ 16,91,00,000/- 1.4.2011 to 30.9.2011 For 6 months at 12% 1,01,46,000 7,79,00,000 x 6/12 x12% __ 46,74,000 1,48,20,000 1,48,20,000 Madurai Property at 12% of 1,44,60,000 17,35,200 (For 1 year Arti Associates) Thalambur Property at 12% of 3,50,00,000 42,00,000 ------------------- 2,07,55,200” -------------------
17 - - ITA 2857 & 2858/16 4.9 According to the CIT(Appeals), now, it is well settled including in the land mark case of CIT v. Shoorji Vallabhdas & Co. (46 ITR 146 [SC]) and Godhra Electricity Company Limited v. CIT (225 ITR 746 [SC]) that income tax is a levy on income and that no doubt income tax takes into account two points of time at which the liability to tax is attracted i.e. the accrual of income or its receipts but the substance of the matter is the income and if income does not result at all there cannot be a tax even though in book keeping an entry is made about a hypothetical income which does not materialize. By the same logic and analogy and going by the spirit of the ratio of the above mentioned cases, the CIT(Appeals) observed that it can safely be said that as there is no mandate in the IT Act to levy tax on hypothetical income there is no mandate in the IT Act in trying to work out hypothetical expenditure to be reduced from the allowable expenditure as erroneously effected by the AO, vide her working out the differential interest aforesaid.
4.10 Further, the CIT(Appeals) did not agree with the contentions and action of the AO and observed that since, under no circumstances can an advance towards purchase of land
18 - - ITA 2857 & 2858/16 which has not been controverted by the AO, but rather acknowledged by herself to be indeed in relation to such advances for the purchase of land at Manjakaranai be held as losing its integral character of advance and partake the character of investment and being in the modes other than the modes authorized by sec.11(5) of the Act, as contended by her.
4.11 According to the CIT(Appeals), the term depositing / investing referred to in sec.11(5) has not been defined in the Act.
As such, and therefore, its meaning as per common English usage and general understanding is to be adopted, as held in a plethora of case laws on the issue. The Oxford Dictionary defines the word ‘depositing’ in ordinary parlance, in its verb form ‘as a sum of money that is given as the first part of a larger payment or to pay a sum of money that one will get back if one returns in good condition or to put something valuable or important in a place where it will be safe or a sum of money that is paid into a bank account.’ The term ‘investing’ similarly, is defined in the Oxford Dictionary as “to buy property, shares in a company etc., in the hope of making profit or spending money on something in order to make it better or more successful or doing
19 - - ITA 2857 & 2858/16 something to spend time / energy / effort etc. on something that is good or useful or to buy something that is expensive but useful.”
4.12 He observed that quite evidently given the above definitions, advances for purchase of lands as it was in the case of the assessee would not fall within the definitions of the above categories elucidated aforesaid. In view of the definitions, the AO’s impliedly treating the advances paid towards purchase of property as either being investment or deposit in non-specified or non-approved modes, not allowable u/s.11(5) of the Act, appears to be clearly based on an erroneous interpretation of the above terms ‘investing’ / ‘depositing’ in terms of sec.11(5) of the Act.
Therefore, invoking the provisions of sec.13(1)(d) of the Act as a consequence to such erroneous interpretation that the assessee had therefore contravened the provisions of sec.11(5) of the Act, is clearly not justifiable, even from the accounting point of view.
4.13 Further, the CIT(Appeals) observed that there is no gainsaying the fact that in order to avail the benefit of sec.11(2) of the Act, both the interest charged by the trust and the security
20 - - ITA 2857 & 2858/16 offered in this regard should be adequate and sufficient which in the case of the assessee was indeed so since the said lands itself were admittedly and undisputably treated as security and further it was seen that an amount of ₹ 3,86,92,077/- which was as per the bank rate of 10% interest and which also included an amount of ₹ 25,00,000/- compensation offered back to the trust by the trustee subsequent to the cancellation of the agreement of sale of the said Manjakaranai property as stated earlier. According to the CIT(Appeals), the AO has nowhere made out a credible case that the above mentioned compensation worked out by way of interest over and above the principal amount was lower than the bank rate of interest at which the interest bearing loans were borrowed from ICICI bank. Therefore, her working out of an additional differential interest of ₹ 2,07,55,200/- which she regarded as adequate rate of interest of the purposes of sec.13(2)(a) of the Act, by relying on the case law of Sri Pungalia Jain Sewtambar Mandir v. CIT (168 ITR 506 [Raj]), wherein it has been stated that the rate of interest would be considered as adequate if it is equal to the rate of interest payable to the bank on deposits which was 10% in that case and therefore, applying
21 - - ITA 2857 & 2858/16 the rate of 12% is quite clearly erroneous, unreasonable and arbitrary, particularly considering the fact that in the case law that the AO, herself has relied on, adequate rate of interest was taken at only 10% as stated earlier and therefore, the facts and even the rates of interest taken therein is distinguishable from the facts obtained in this case.
4.14 Therefore, according to the CIT(Appeals), it is highly improbable and unfair to hold that the funds of the assessee trust had been used for the benefit of the trustees / interested persons either directly or indirectly and therefore since the interest and the compensation actually received by the assessee trust from the Managing Trustee was higher than the amount of interest to be calculated @ 10%, the rate of interest at which the assessee trust was borrowing the funds, the amount of interest charged / received by the assessee from the Managing Trustee could be said to be more than adequate in terms of sec.13(2)(a) of the Act.
4.15 As for adequate security relating to the aforesaid land purchase, since, the assessee trust and the Managing Trustee
22 - - ITA 2857 & 2858/16 had entered into an “agreement for sale” of land and it was in the form of a written agreement on revenue stamp paper, irrespective of the intentions of the parties, the said agreement was legally valid and since based on this document only the assessee trust advanced the above mentioned sums to the Managing Trustee and as such, legally written agreement for sale of the lands was in the possession of the assessee trust, in case of any probable default by the Managing Trustee, the trust could take legal action by getting the land registered in its name etc., and thus, the said document of “agreement for sale” of the land could be said to serve as adequate security for the amounts advanced, even if the amount paid was to be treated as a financial loan transaction only, as contended by the AO.
Therefore, even it the AO’s said contention that the amounts paid by the assessee trust to the Managing Trustee, was a loan camouflaged in the form of advance for land purchase, was to be considered, still the transaction was backed by adequate consideration as well as sufficient security and therefore, the exception contained in the provisions of clause (a) of sub-sec.(2)
23 - - ITA 2857 & 2858/16 of sec.13, clearly keeps the present transactions outside the scope of sec.13(2)(a) r.w.s.13(1)(c) or 13(1)(d) of the Act.
4.16 Further, the CIT(Appeals) observed that both for the Madurai property wherein the balance ₹ 1,44,60,000/- was outstanding against Arthi Associates wherein the wife of the Managing Trustee held majority shares and also Thalambur property, wherein the balance was seen to be ₹ 3,50,00,000/-, the interest thereon for the purpose of repayment to them, have been worked out and remitted by the Managing Partner of the assessee at 12% and 14% for the FY 2011-12 and 2012-13 as evidenced by the working of the same.
4.17 Accordingly, the CIT(Appeals) relied on the order of Tribunal forr the AY 2010-11 in assessee own case, which also dealt with the same issue relating to the said advance which was initially advanced during the FY 2009-10, and therefore, the Tribunal decide the issue on hand, as to whether the advance made for purchase of land can strictly be treated as loan to interested persons in violation of sec.13(2)(a) or even 13(2)(b) of the Act in the case of the assessee and what constitutes market
24 - - ITA 2857 & 2858/16 value of land and whether the prohibition u/.s13(2) of the Act in benefitting interested persons as sec.13(3) of the Act was a blanket prohibition or not, all of which have been considered and deliberated upon by the Tribunal in a cogent and logical manner and which is pertinent and crucial in determining the aforesaid grounds particularly with reference to the proposed purchase of the Manjakarani property for the purpose of establishing a medical college and deemed university in order to effectuate the
The CIT(Appeals), further observed that in view of the decision of the Jurisdictional High Court in the case of Dasa Balinjika Seva Sangam v. CIT (240 ITR 854)(Mad) as also the decision of Tribunal, in assessee’s own case, the transaction of payment of advance for purchase of land to the Managing Trustee as also of the Madurai and Thalambur properties, even if treated as loan transactions more fully secured and adequately compensated and hence not amounting to a violation u/s.13(1)(c) r.w. sec.13(2)(a) of the Act. Therefore, the CIT(Appeals) observed that the AO was r not justified in denying the assessee’s claim of exemption u/s.11 and the AO’s action is 25 - - ITA 2857 & 2858/16 legally untenable and the addition made thereon of ₹ 2,07,55,200/- is to be deleted. Accordingly, the CIT(Appeals) directed the AO to grant the benefit of exemption u/s.11 of the Act as claimed by the assessee.
The next issue with regard to addition in respect of ‘corpus donations’ at ₹ 4.30 crores and ₹ 3 crores respectively for the AYs 2012-13 and 2013-14, without any worthwhile discussion on the reasons for holding so, leading the AO to hold the same as contravening thereby the provisions of sec.13(1)(c) r.w. sec.13(2) and 13(3) as also that of sec. 11(5) r.w.sec.13(3) and 13(1)(d) and since therefore by virtue of sec.13(8) of the Act, exemption to the assessee u/s.11 became inoperative and therefore, ‘any income’ including the so-called ‘corpus donations’ construed by the AO got disallowed and added back to be charged at the maximum marginal rate as per the third proviso to sec.164(3) of the Act, which action of the AO appears to be not only borne out by the facts obtained relating to the true nature of the same but also a clearly erroneous interpretation of the aforesaid provisions of law in as much as the amount of ₹4.30 crores and ₹ 3 crores respectively treated purportedly at par by 26 - - ITA 2857 & 2858/16 the AO as corpus donations are seen from the books of account and other material to be in fact a receipt and not an advance/donation of corpus of ₹ 4.30 crores from four, including three unrelated parties / concerns, and in fact a temporary loan of ₹ 3 crores advanced to Bhagwan Mahaveer Memorial Trust, a 12AA registered and 80G approved Trust having similar objects as that of the assessee of running education institutions for effectuating such objects as per its Trust Deed.
6.1 It is an uncontroverted fact that the said donations received of ₹ 4.30 crores for the AY 2012-13 by the assessee being the donee trust was applied for the purposes mandated by the donors towards corpus/capital of the Trust and therefore, the assessee could not be said to have contravened any provision of the Act, meriting addition of the said amounts, as effected totally arbitrarily by the AO. The fact that the said ₹ 4.30 crores for AY 2012-13 was capital contributions towards donations is clearly evident from the extract of such corpus received by the assessee from the four parties as stated earlier, three of which were totally unrelated in terms of sec.13(3) of the Act .
27 - - ITA 2857 & 2858/16
7. The CIT(Appeals) has gone through the letter issued by the concerned parties confirming the donation of corpus and observed that as to the amount of ₹ 3 crores for AY 2013-14 construed again by the AO as ‘corpus donation’ is clearly erroneous in view of the fact that the amount of ₹ 3 crores was advanced as loan for the purpose of imparting education as its primary object which is on par with the objects of the assessee trust and evidently there is no bar in the IT Act against such advancement of loan to such other trust duly registered / approved. Again, there are a plethora of cases which clearly hold that there is no bar in a 12AA registered trust advancing loan to another 12AA registered done, in this case, Bhagwan Mahaveer Memorial Trust and there is no mandate to deny exemption u/s.11 of the Act either due to such advances being made, as erroneously effected by the AO, in the assessee’s case.
7.1 According to the CIT(Appeals) , in the case of DIT v. Acme Educational Society, it was held that advancing of interest free loan by one society to another society having same objects, which was also the case in the assessee’s case, where it
28 - - ITA 2857 & 2858/16 donated to Bhagwan Mahavbeer Memorail Trust, as mentioned earlier, would not amount to attract sec.13(1)(d) of the Act and, therefore, exemption was allowable u/s.11 thereon. The CIT(Appeals), further relied on the decision in the case of Kumudam Endowment v. ITO, wherein it has held that loans and advances are debts owed to certain parties by the assessee, as it is in the case of the assessee also, as stated earlier, and could not be regarded as ‘investment or deposits’ made by the assessee and therefore it was entitled to exemption u/s. 11 of the Act.
7.2 Further, the CIT(Appeals) relied on the decision of the Tribunal, Madras in the case of JCIT v. Bhaktavatsalam Memorial Trust (30 ITR (T) 263), wherein it has been held that there can be no denial of exemption of the assessee when interest free loan was advanced by such institution to other charitable institution registered u/s.12AA of the Act having similar objects, as it is not in violation of the provisions of sec.13(1)(d) r.w.sec.11(5) of the Act. According to the CIT(Appeals), the addition made by the AO on account of the donation received of ₹ 4.23 crores for the AY 2012-13 and temporary loan advanced
29 - - ITA 2857 & 2858/16 to Bhagwan Mahaveer Memorial Trust of ₹ 3 crores for the AY 2013-14 holding it to be contravening provisions of sec.13(1)(c)/13(1)(d) r.w.sec.13(2), 13(3) and 11(5) of the Act and thereby denying exemption u/s.11 thereon by invoking sec.13(8) of the Act for the rather specious and unconvincing reasons adduced by the AO is considered to be legally untenable and the addition is to be deleted. Aggrieved by this order of the CIT(Appeals), the Revenue is in appeal before us.
8. The next ground for the AY 2013-14, wherein the issues are interconnected with AY 2012-13 in terms of the advances and purchases made of the Manjakaranai land besides advances made to VGS Estates (P) Ltd. for the purpose of construction of staff quarters wherein the reasoning of the AO is also clearly indicated and therefore not separately reproduced in the interests of brevity. It is seen that the AO has in a general and ad hoc manner disallowed an amount of 10% by invoking sec.13(1)(c) of the Act for contravention of sec.13(3) on the cost of land purchased by the Trust from the Managing Trustee, advances made to VGS Estates (P) Ltd., for the purpose of construction of staff quarters, rent paid to Ms. Kushmitha
30 - - ITA 2857 & 2858/16 Ganesh and Arthi Associates and advances made and rent paid to Arthi Ganesh and Samdura Resorts besides rent paid to Vinayaga Educational Trust without mentioning in detail why all of the above transactions have been willy nilly equated almost on the same footing by disallowing uniformly 10% of such amounts advanced / paid which the AO felt unreasonable and benefitting directly or indirectly persons specified in sec.1 3(3) of the Act and therefore, running foul of sec.13(1)(c), which does not appear to have any basis, but appears rather, to be quite arbitrary and whimsical in fact. Further, it is neither justified in a cogent and credible manner as to why such an ad hoc disallowance of 10% had been made in respect of all the aforesaid transactions, whereas the material facts relating to the payment made towards the cost of land and advances made thereto and rents paid are for various properties at varying prominent places in Chennai for varying purposes with varied urgency of requirement and therefore certainly not amendable to a uniform one-size-fits all ad hoc disallowance of 10%, as effected by the AO.
31 - - ITA 2857 & 2858/16
Now, coming separately to each of the transactions mentioned above, firstly, regarding the land purchased from Ishari Ganesh, the trustee of the assessee trust at ₹ 27.90 crores, the CIT(Appeals) observed that the very fact as pointed out by the ld. AR, that out of the total land purchased of 34 acres, land bearing document No.2754 was worth ₹ 40.80 lakhs, which was purchased from unrelated third party, not coming within the persons specified u/s.13(3) of the Act, Shri D. Sadhish Kumar, at almost the same rate as purchased from Ishari Ganesh, itself bears testimony to the incontrovertible fact that the cost of acquisition paid to Ishari Ganesh was more or less at the prevailing market rate, a fact neither controverted nor commented as to its unreasonability, as again erroneously alleged by the AO. 9.1 According to the CIT(Appeals), if the AO had any doubt or misgivings about the rate at which the land was acquired by the assessee trust, he would have done well to refer the same to the Valuation Officer u/s.55A of the Act with a view to ascertaining the fair market value of the capital asset in question particularly when he suspected that the value so claimed was at variance
32 - - ITA 2857 & 2858/16 with its fair market value. The CIT(Appeals) observed that the AO has neither bothered to find out the guideline value of the said property which would have at least given him some idea of the land price fixed by the competent authority nor has he found out comparable sale prices of comparable properties in and around the same localities in order to arrive at the valuation of the said impugned properties and therefore the adoption of an ad hoc rate clearly smacks of an arbitrary approach which is not justified.
9.2 Coming to the advances made to VGS Estates (P) Ltd., for the purpose of construction of staff quarters, the CIT(Appeals) observed that it is again uncontroverted that the same was paid to VGS Estates (P) Ltd., for construction of staff quarters jointly with Kgyes (P) Ltd. for the purpose of accommodating staff working in the assessee’s college, which therefore, left no question of inferring that the assessee trust had deviated from the main object of the trust, being primarily of promoting educational activities by making arrangement for the staff and non-teaching staff for their residential quarters.
According to the CIT(Appeals), here also, there is no question of 33 - - ITA 2857 & 2858/16 any undue benefit either directly or indirectly being passed on to the assessee trust in view of the cancellation of agreement dated 29.9.2013, which clearly provided for ₹ 5 lakhs as damages or forfeiture charges which again has not been disputed by the AO and if anything, clause 15/2 in the sale agreement/cancellation agreement respectively extracted hereunder :
“The Vendor (VGS Estate) forfeits his claim of damages/forfeiture charges as per clause No.5 of the terms of agreement to sell, as a gesture of goodwill” “in view of the gesture by the vendor as per clause 2 above the purchaser will not claim any interest in future over the amount to be repaid by the vendor” Protected and benefitted the assessee trust from damages which was in fact paid by VGS Estate (P) Ltd., to the assessee, thereby compensating the assessee as per contractual terms of the agreement, instead of the assessee trust itself being benefitted in any manner, as again erroneously contended by the AO.
9.3 Therefore, according to the CIT(Appeals), there is not merit in the AO’s contention that such advances made to VGS Estates (P) Ltd., was in contravention of sec.13(1)(c) of the Act directly or indirectly benefitting any person referred to in 34 - - ITA 2857 & 2858/16 sec.13(3) of the Act. Accordingly, the CIT(Appeals) observed that the AO’s disallowance of 10% of ad hoc amount in a general and ad hoc manner without any pointed cogent reasons for adopting such an approach appears to be without merit and rejected.
9.4 Coming to the rent paid to Kushmitha Ganesh and Aarthi Associates, the AO has again not reasoned cogently as to why and how the office premises owned by the daughter of Managing Trustee at a prime location in Anna Salai, Nandanam of 2400 s.f., at the rate of ₹ 25 per sq.ft. which in any case was below the market price for such a prime location for such kind of property at Anna Salai particularly in the background of the fact that the premises had to be rented since it was useful to cater to the public at large to have access to information of colleges at various locations in decent locality of Chennai, which for a trust, running engineering, medical, dental colleges by itself, is required for its own visibility, goodwill and marking competitiveness in the highly competitive educational field in Tamilnadu in today’s times. Here too, the AO would have done well to find out at least the annual value of the property from in 35 - - ITA 2857 & 2858/16 and around the locality where the said property is situated to ascertain how much the property might be reasonably be expected to be let from year to year or the rent received or receivable in an around that locality from the landlords / tenants / rent controller of that area. In the absence of any such exercise by the AO, it is difficult to justify an ad hoc addition of 10% of such rent, termed excessive by the AO and is therefore rejected.
9.5 The CIT(Appeals) observed that as to the rent paid to Arthi Associates of ₹ 60 lakhs which was on account of rent paid to guest house at Injambakkam with an area of 1 acre (appx 43560 sq.ft. with a built-up area of 13735 sq.ft., completely furnished) at a prime residential locality and being rented at 5 lakhs per month for such a sizable area with fully furnished guest house at a prime location could not be called as unreasonable without the AO controverting the same or without marshalling facts about the rent prevalent in the same / similar area of comparable properties and comparable needs / urgency of the prospective / actual tenants. Here too, since the AO has not referred the issue of the reasonability or otherwise of the rent to any valuation officer or Rent Controller etc., for the same
36 - - ITA 2857 & 2858/16 reasons mentioned in relation to the rent paid to Ms. Kushmitha Ganesh and Aarthi Association supra, such ad hoc and arbitrary disallowance of 10% of the said rent is rejected.
9.6 The CIT(Appeals), again for the same reasons in respect of two transactions discussed above, observed that the similar ad hoc and arbitrary disallowance of 10% on the rent paid to Ms. Arthi Ganesh of ₹ 54 lakhs and advance of ₹ 50 lakhs as also ₹57.75 lakhs and ₹ 2 crores paid to Samudra Resorts and Vinayaga Educational Trust amounting to ₹ 3,53,93,400/- respectively for premises taken on rent and used as a hostel for students and further infrastructure development at Pallavaram, Chennai, which were all for the express purposes of effectuating the objects of the assessee trust, which as stated earlier, was also imperative to survive in the highly competitive private professional education scenario in Tamilnadu in today’s day and age, and is therefore held to be legally untenable and therefore rejected. According to the CIT(Appeals), in none of the above transactions, has the AO been able to make out a cogent logical and reasonable case as to how by undertaking such transactions, the assessee trust had either directly or indirectly
37 - - ITA 2857 & 2858/16 benefitted persons specified in sec.13(3) of the Act and, therefore there is no justification or rationale for invoking the provisions of sec.13(1)(c) of the Act, thereon. Therefore, the CIT(Appeals) observed that the ad hoc and generalized disallowance of 10% in respect of all the transactions aforesaid is legally untenable and is to be deleted. Accordingly, the CIT(Appeals), allowed this ground of appeal of the assessee.
Against this, the Revenue is in appeal before us.
At the time of hearing, the ld.A.R submitted that the Tribunal,in the earlier assessment years 2010-11 & 2011-12 in assessee's own case, considering the issue relating the amount advanced to Dr. Ishari Ganesh and other parties, who were having substantial interest in the assessee’s trust, and also regarding corpus donations issued by the assessee and the Tribunal decided this issue in favour of assessee by observing in paras-4 to 7 of its order as follows:-
“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 and CO 15/Mds/2014. The Tribunal vide its order dated 28.10.2015 held as follows :
38 - - ITA 2857 & 2858/16
7. We have considered the rival submissions on either side and perused the relevant material on record. It is not in dispute that the assessee-Trust is registered under Section 12AA of the Act. It is also not in dispute that there was an agreement for sale of the land belonging to the Managing Trustee to the assessee-Trust. The only objection of the Revenue appears to be that the sale of the land is not on par with the market value. From the order of the Assessing Officer it appears that the market value of the land is very less than what was agree to be sold to the assessee-Trust. The fact remains that there was an agreement for sale of the property and the assessee-Trust advanced the funds. There is no fixed price for sale of land. The price of a land is flexible, depending upon various factors. The urgency of the vendor to sell the property, the necessity of the purchaser to purchase the property, the location of the land, the area of the land, infrastructures available nearer to the land and future prosperity for development of the land, etc. need to be considered while determining the market value of a land. Apart from that, it is well settled principles of law that market value is nothing but a price agreed between the willing seller and willing purchaser. Therefore, we cannot say that a particular land has to be sold by a particular person for a particular rate. If two willing persons agreed to sell and purchase the property for a particular price, then the Assessing Officer may not have any role to dismiss the agreed price unless there are some evidences found that the agreed price disclosed is not actually the agreed price. In the case before us, it is nobody’s case that the price agreed between the Managing Trustee and the Trust is not actually the agreed price. Therefore, the observation of the Assessing Officer in the assessment order that the value of the land is much less
39 - - ITA 2857 & 2858/16 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.
We have carefully gone through the provisions of Section 13 of the Act. Section 13(1)(a) says that if any part of the property or income of the Trust is given to the interested person without either adequate security or adequate interest, for the benefit of the person interested, then there shall be a diversion of funds for the interested person. Section 13(1)(c) says that if the amount paid is excess of what was reasonably paid for the service rendered has to be considered as used or applied for the benefit of person interested. In the case before us, the Managing Trustee has not rendered any service. In fact, there was an agreement for purchase of property. Therefore, the question arises for consideration is whether the money advanced by the assessee to the extent of `15,76,00,000/- is without adequate security and after cancelling the agreement, whether the assessee has received the adequate interest from the Managing Trustee. We have carefully gone through the order of the CIT(Appeals). From the order of the CIT(Appeals) it appears that the assessee has received `4,06,92,078/- being the interest from the Managing Trustee, in addition to the principal amount after cancellation of 40 - - ITA 2857 & 2858/16
agreement. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that after cancellation of agreement, the assessee-Trust was returned and compensated by way of interest. Therefore, the transaction between the assessee-Trust and the 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 sale of the land, the Managing Trustee has also paid interest to the extent of `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.
9. Now coming to the receipt of donation from Sri Balaji Charitable and Educational Trust, what was received by the assessee is capital asset by way of three institutions and its infrastructures. It is nobody’s case that the assessee’s funds were diverted to any other Trust. When the assessee received three institutions for carrying out its charitable activity, it cannot be said that there was a violation of any other provisions of Income-tax Act. In fact, the Assessing Officer himself disallowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee. Since this Tribunal found that there was no violation of Section 13(1)(c) of the Act in respect of the agreement entered between the assessee-Trust and the Managing Trustee for purchase of property and it is not in dispute that the Managing Trustee returned entire amount with interest of `4,06,92,078/-, the assessee is entitled for exemption under Section 11 of the Act. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, confirmed. “
41 - - ITA 2857 & 2858/16
5. Since the issue relating to the money advanced to Mr. Isari K. Ganesh and other parties was subject matter of appeal before this Tribunal for assessment year 2010-11 vide order dated 28.10.2015 taking the consistent view on the facts of the case and by placing reliance on the judgement of jurisdictional High Court in the case of CIT Vs. L. G. Ramamurthi in [1977] 110 ITR 453 (Mad) wherein held that Tribunal is not right in taking altogether different view in later year on same set of facts, when 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. 6. 1 Regarding treatment of contributions made with the specific 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.w.s.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, according to 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.
42 - - ITA 2857 & 2858/16
We have heard both the parties and perused the material on record. According to the Authorised Representative these funds are contributed to the trust for the specific purpose and it being a capital receipt, it cannot be taxed and this is not collected from students so as to treat the same as income of assessee u/s.2(24)(iia) of the Act in view of the Amendment to this Section with effect from 01.04.1989. According to the AR these funds are contributed to the trust for specific purpose and it being capital receipt it cannot be taxed and this is not collected from the students so as to treat the same as income of the assessee u/s 2(24)(iia) of the Act in view of the amendment to this section w.e.f. 1.4.1989. The assessee contended that this amount was collected towards “Corpus fund” with a specific direction for capital expenditure and the amount so received was spent for specific purpose for which it was collected. According to the AR it cannot be treated as income of the assessee as it is a specific grant. According to the AR the entire receipts received towards specific purpose cannot be taxed. 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 to suggest 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 43 - - ITA 2857 & 2858/16
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 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 Sampath Iyengar 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) (Bom) 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 Kasturbai Scindia Commission Trust (189 ITR 5) (Born). In the present case donations
44 - - ITA 2857 & 2858/16 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 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.”
11.1 According to ld.D.R, in these two assessment years, there are other issues specifically in assessment year 2012-13 with regard to purchase of land measuring 4.49 acres worth 4 crores at Zamin Pallavaram from M/s.VGS(P) Ltd at a cost of 13.57
45 - - ITA 2857 & 2858/16 crores, which was not at all adjudicated by the Ld.CIT(A).
Admittedly, on this issue, the assessee went on appeal before the Ld.CIT(A) . However, the Ld.CIT(A) not given findings on this issue in the assessment year 2012-13, as such this issue requires adjudication by the Ld.CIT(A). Accordingly, this issue is remitted to the file of Ld.CIT(A) for his consideration.
11.2. The Ld.CIT(A) observed in assessment year 2012-13 that the interest has been remitted at 14% for the advance of `2 crores paid to VGS Estates for the property at Thalambur and there is no violation u/s.13(1)(c) of the Act. In the assessment year 2012-13, the contention of the ld.D.R is that the interest was only shown payable, but not actually received by the assessee.
Hence, it is required to be examined afresh by the Ld.CIT(A) whether it was actually received by the assessee in this assessment year or not, to be decided afresh and this issue is remitted to the file of Ld.CIT(A) for his consideration.
46 - - ITA 2857 & 2858/16
The next ground in assessment year 2012-13 is with regard to Ld.CIT(A) findings that the trust is eligible for exemption/s.11 of the Act and there was no violation/s.13(1)(c) of the Act in respect of amount paid to Managing Trustee for purchase of land at Manjakaranai.
We have heard both the parties and perused the material on record. This issue was decided in favour of assessee by the Ld.CIT(A) by placing reliance in Order of Tribunal in ITA No.1759/Mds./2013 vide order dated 28.10.2015 for assessment year 2010-11. However, in this assessment year, Ld.CIT(A) observed in page Nos.17 & 18 that the assessee is benefited by saving interest and Trustees were not benefited. We are not able to appreciate the finding as this calculation of interest was not confronted to AO. Hence, we remit the issue to the file of Ld.CIT(A) to decide afresh after confronting to AO. This ground is partly allowed for statistical purposes.
The next ground in assessment year 2012-13 is with regard to Ld.CIT(A) findings that the advances made by the Trust
47 - - ITA 2857 & 2858/16 to the concerns in which the trustees are interested are not attracted by the provisions of the section 13(1)(d) r.w.sec.11(5) of the Act.
We are of the opinion that whether assessee has subsequently received the interest or not to be verified with reference to books of accounts of assessee. Accordingly, the CIT(A) is directed to decide afresh.
The next ground in assessment year 2012-13 is with regard to advancing interest free funds to the interested persons specified u/s.13(3) of the Act and incurring of interest at `2.02 crores on term loan availed from ICICI Bank. If advance on account of commercial expediency, then only the claim of assessee to be allowed. Accordingly, the Ld.CIT(A) has to give findings on commercial expediency of advancing the money to the interested persons and decide thereupon.
The next ground in assessment year 2012-13 is with regard to taxing of corpus donations. If it is a corpus donations, it cannot be taxed as held by the Tribunal on the earlier occasion in 48 - - ITA 2857 & 2858/16 ./2015 for assessment year 2011-2 dated 19.12.2016. However, the assessee has furnished confirmation letter from the parties first time before the Ld.CIT(A). The same to be confronted to ld. Assessing Officer. Hence, this issue is remitted back to the file of Ld.CIT(A) for the same and to decide fresh.
In the result, ITA No.2857/Mds./2016 is partly allowed for statistical purposes.
Now, coming to ITA No.2858/Mds./2016 for assessment year 2013-14.
The first ground is with regard to findings of Ld.CIT(A) that there is no violation u/s.13(1)(c) of the Act in respect of amount paid to Managing Trustee for purchase of land. As discussed in earlier para No.13 in ITA No.2857/Mds./16, this issue is remitted to the file of ld. CIT(Appeals) as discussed therein.
The next ground is with regard to findings of Ld.CIT(A) that there is no violation u/s.13(1)(c) of the Act in respect of payment made to M/s.Vinayaka Educational Trust.
49 - - ITA 2857 & 2858/16
The Ld.CIT(A) has to give the findings whether any interest or security provided in the above transaction and decide accordingly.
The next ground is with regard to findings of Ld.CIT(A) that there is no violation u/s.13(1)(c) of the Act in respect of advance of ` 2.50 crores given to M/s.VGS Estates.
24.1 According to AR, this amount has been given for construction of staff quarters and the said amount was returned to the assessee on 24.09.2013 and there is no contra material against this. In our opinion, this is to be examined by Ld.CIT(A) with reference to the agreement entered between the parties and the assessee has to prove the commercial expediency of the transactions. Accordingly, this issue is remitted to the file of ld. CIT(Appeals) for fresh consideration.
The next ground is with regard to findings of Ld.CIT(A) that advances made by the Trust to the concerns in which the trustees are interested are not attracted by provisions of the section 13(1)(d) r.w.s.11(5) of the Act.
50 - - ITA 2857 & 2858/16 25.1 As discussed in earlier para in ITA No.2857/Mds./16, this issue is remitted to Ld.CIT(A) for further consideration.
The Ground No.6 in ITA No.2858/Mds.2016 is infructuous in view of the Order of the Tribunal dated 16.12.2016 in ITA No.1548/Mds./2015, which was decided in favour of the assessee. This ground No.6 of appeal is dismissed.
In the result, ITA No.2858/Mds./2016 is partly allowed for statistical purposes.
To sum up, both the appeals filed by the Revenue in & 2858/Mds./2016 are partly allowed for statistical purposes. Order pronounced on 17th August, 2017 at Chennai.