DDIT, CHENNAI vs. NACHIPUR EDUCATIONAL TRUST, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

All the appeals of the Revenue are directed against different

orders of the Commissioner of Income Tax (Appeals), out of which

two are common orders, viz. one for assessment years 2004-05 to

2008-09 and the other for assessment years 2005-06 to 2008-09

and there is a separate order for assessment year 2004-05. Since

common issue arises for consideration in all these ten appeals, we

heard the appeals together and disposing of the same by this

common order.

Revenue. The Revenue has filed a petition for condonation of

delay. We have heard the Ld. Departmental Representative and

the Ld. representative for the assessee. We find that there was

3 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 sufficient cause for not filing the appeals before the stipulated time.

Therefore, we condone the delay and admit the appeals.

submitted that both the assessees are registered as charitable

institutions under Section 12AA of the Income-tax Act, 1961 (in

short 'the Act'). During the assessment years under consideration,

both the assessees claimed to have received corpus donation.

However, the corpus donation claimed to have been received by

both the assessees found to have been added to the Capital Fund.

The Ld. D.R. further submitted that the assets created out of the

accumulated Capital Fund were not reflected in the books of

account of both the assessees. The Ld. D.R. further submitted that

the assessees have not furnished the complete details of the donors

from whom the corpus donation was claimed to have been received.

Therefore, the Assessing Officer treated the entire so-called corpus

donation said to be received by the assessees as income of the

assessees. According to the Ld. D.R., the assessees have also not

filed any evidence for application of their fund for charitable

purpose. Referring to the assessment orders, the Ld. D.R.

submitted that both the assessees transferred their funds to two

4 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 private companies, namely, M/s Prajit Foundation Pvt. Ltd. and M/s

Golden Shelters Pvt. Ltd. According to the Ld. D.R., both the

assessees pooled their funds for construction of massive marble

structure at Chedulapakkam Village, Varadalapalam Mandal,

Chittoor District, Andhra Pradesh. The massive marble structure

was said to be meant for meditation hall for general public.

However, the structure constructed by two private companies

continue as asset in their books of account. Moreover, two of the

Directors of the above said two companies are close relatives of the

trustee of both the trustees. Therefore, the Assessing Officer found

that there was a clear violation of Section 13(1)(d) of the Act.

Referring to Section 11 of the Act, the Ld. D.R. pointed out that what

was excluded as income is corpus fund received by the assessees

with a specific direction. In this case, according to the Ld. D.R., the

details of the donors were not disclosed to the Department.

Therefore, it cannot be construed as corpus donation at all.

Diversion of fund to the private limited companies for construction of

a meditation hall by two private companies would amount to

diversion of fund other than the object of the trusts. Therefore, the

Assessing Officer has rightly rejected the claim of the assessees for

exemption under Section 11 of the Act.

5 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14

that the assessees claimed the diversion of fund to two private

companies as infrastructural development expenses. However, the

asset created did not form part of the asset of the trusts. According

to the Ld. D.R., the money transferred to two companies for

construction of a meditation hall cannot be construed as

infrastructural development expenses. The funds were given to the

companies for the benefit of said companies. Referring to the lease

agreement, the Ld. D.R. pointed out that the lease agreement to

transfer the assets is an afterthought. The asset was, in fact,

constructed on the land belonging to Anirjita Properties. The

assessees are not the owners of the land. Therefore, the

CIT(Appeals) is not justified in saying that there was no violation of

Section 13(1)(c) of the Act. The Ld. D.R. further pointed out that

Shri N.V.K. Krishna and his wife Smt. K. Preethi are holding the

entire shares of the company, namely, M/s Golden Shelters Pvt.

Ltd. and Shri Vijaykumar, father of Shri N.K.V. Krishna, is a founder

trustee of the assessees. Similarly, the said Shri N.K.V. Krishna

and his wife Smt. K. Preethi are the major shareholders of M/s Prajit

Foundation Pvt. Ltd.

6 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 5. The Ld. D.R. further pointed out that M/s Anirjita Properties

was the owner of the land on which the meditation hall was

constructed. There was an agreement between Anirjita Properties

and M/s Golden Shelters Pvt. Ltd. However, the company claimed

in the later stage that there was a lease agreement for a period of

30 years. The Ld. D.R. further pointed out that both the assessee-

trusts own vast stretch of land at Kunnawalkam Village in Andhra

Pradesh. Therefore, it is not known why the massive construction

was put up in a land belonging to other person. According to the

Ld. D.R., since the construction was made in the land belonging to

Anirjita Properties, and building stands in the name of two

companies, which are owned by close relatives of Shri Vijaykumar,

one of the trustees, the Assessing Officer rightly found that there

was a violation of Section 13(1)(c) and 13(1)(d) of the Act.

Therefore, the assessees are not entitled for exemption under

Sections 11 and 12 of the Act. According to the Ld. D.R., the

CIT(Appeals) misconstrued himself and allowed the claim of the

assessees under Section 11 of the Act.

assessee, submitted that admittedly, both the trusts are registered

as charitable trusts under Section 12AA of the Act. In furtherance of

7 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 the object of the trusts, the assessees intended to construct a

meditation hall for the use of the public at large. Since the

assessees have no technical expertise to erect a big meditation hall,

the work was entrusted to M/s Prajit Foundation Pvt. Ltd. and M/s

Golden Shelters Pvt. Ltd. The assessees have also received

corpus donation with a specific direction to use the funds for

construction of meditation hall. The two companies carried out the

construction of meditation hall on the funds advanced by the

assessee-trusts. After completing the construction, the entire

meditation hall was handed over to the assessees. Referring to the

order of the CIT(Appeals) for the assessment year 2004-05, the Ld.

representative submitted that the CIT(Appeals) after referring to the

object of the trusts, found that the assessees are conducting

classes for teaching ideology of Buddha and J. Krishnamurthy. The

meditation hall constructed by the assessees is open to general

public, not only for meditation but also for conducting lectures,

educational activities, training purpose, etc.

were transferred to the companies in which close relatives of the

trustee are Directors, the Ld. representative submitted that one Shri

8 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 V. Vijaykumar was the trustee till 08.06.1991. The said Shri V.

Vijaykumar relinquished the trusteeship with effect from 08.06.1991.

Therefore, Shri V. Vijaykumar is no longer a trustee in both the

trusts in the assessment years under consideration. Therefore,

merely because the Directors of the two companies, which

constructed the meditation hall, are related to the above said ex-

trustee Shri V. Vijaykumar, it cannot be construed as violation of

Section 13(1)(c) and 13(1)(d) of the Act. According to the Ld.

representative, in the assessment years under consideration, there

is no violation of any provisions of Section 13 of the Act. Referring

to the orders of the CIT(Appeals), the Ld. representative submitted

that the CIT(Appeals), after considering the fact that Shri V.

Vijaykumar relinquished his trusteeship on and from 08.06.1991,

found that there was no violation of Section 13(1)(d) of the Act.

Hence, the exemption claimed by the assessees under Section 11

of the Act cannot be denied.

representative submitted that the construction was made by the two

companies on the funds advanced by the two assessee-trusts.

After completion of construction, the companies admittedly handed

9 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 over the building to the trusts. The property tax assessment stands

in the name of assessee-trusts. Therefore, according to the Ld.

representative, the property belongs to the trusts and not to the

companies. The moment the construction was completed, the

physical possession of the property was handed over to the

assessees. Therefore, at any stretch of imagination, the Revenue

cannot claim that the property belongs to two companies. The Ld.

representative further submitted that the property tax was also

assessed in the hands of the two assessee-trusts by the respective

local bodies. Hence, there is no justification in claiming that the

building belongs to the companies. According to the Ld.

representative, in fact, the building belongs to the assessee-trusts,

therefore, the expenditure incurred by the assessees for

construction of the building has to be treated as infrastructural

development expenses. The Ld. representative further submitted

that the meditation hall was constructed in furtherance of the object

of the trusts. Therefore, the expenditure has to be treated as

application of funds under Section 11 of the Act.

representative submitted that in fact the assessees have received

10 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 corpus donation from various people with specific direction to use

the same for construction of meditation hall. The details of the

donors were furnished before the lower authorities. However, in

respect of some of the donors, only the village name was furnished.

According to the Ld. representative, the people who hailed from

villages could be identified by referring to their village. Therefore, it

cannot be said that the details of the donors were not furnished by

the assessees. Even assuming for argument sake, according to the

Ld. representative, that these are anonymous donation, still it has to

be treated as application of funds for creation of infrastructure for

the trusts. The entire receipt was used for construction of

meditation hall at Varadalapalam Mandal. Therefore, according to

the Ld. representative, the CIT(Appeals) has rightly allowed the

claim of the assessees.

perused the relevant material on record. Admittedly, both the

assessee-trusts are registered under Section 12AA of the Act. Both

the assessees claim exemption under Section 11 of the Act.

However, the Assessing Officer denied the same on the ground that

there was violation of Section 13(1)(d) of the Act. In other words,

11 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 the trust funds were diverted for interested person as provided

under Section 13(1)(d) of the Act. We have gone through the

orders of the lower authorities and material available on record.

The funds of the trusts were advanced to two companies, namely,

M/s Prajit Foundation Pvt. Ltd. and M/s Golden Shelters Pvt. Ltd. for

construction of meditation hall at Varadalapalam Mandal, Chitoor

District, Andhra Pradesh. One Shri N.K.V. Krishna and his wife

Smt. K. Preethi own the entire shares in M/s Prajit Foundation Pvt.

Ltd. and M/s Golden Shelters Pvt. Ltd. Shri N.K.V. Krishna is none

other than the son of Shri V. Vijaykumar, who was the trustee of

both the trusts. However, the said Shri V. Vijaykumar relinquished

his strusteeship on and from 08.06.1991. Therefore, for the

assessment years under consideration, the said Shri V. Vijaykumar

has no relationship with the trusts. The question arises for

consideration is when Shri V.Vijaykumar is no longer a trustee of

the assessee-trusts, can the funds be advanced to the companies in

which the son of Shri V. Vijaykumar and his daughter-in-law are

holding shares would amount to diversion of funds to interested

person? This Tribunal is of the considered opinion that the moment

Shri V. Vijaykumar relinquished his trusteeship, it cannot be said

that Shri V. Vijaykumar’s son and daughter-in-law are interested

12 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 persons in the trusts. Therefore, this Tribunal is of the considered

opinion that there is no violation of Section 13(1)(d) of the Act.

the details were furnished before the lower authorities. From the

material available on record, it appears that all the details were not

furnished. Though certain details were furnished, it is a fact that

complete details were not furnished before the lower authorities.

Therefore, part of the so-called corpus donation has to be treated as

income of the assessee-trusts. However, it is not in dispute that the

entire corpus donation and other donations were used for the

construction of meditation hall at Varadalapalam Mandal.

Therefore, even if the claim of the assessees with regard to receipt

of corpus donation is disbelieved, then the so-called donation has to

be treated as income of the assessee and it is to be allowed as

application for creating infrastructure. Since admittedly the

donations were used for construction of meditation hall, this Tribunal

is of the considered opinion that the entire income has to be held as

application of income. Therefore, the CIT(Appeals) has rightly

allowed the claim of the assessee.

13 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 12. Now coming to construction of meditation hall by two

companies, the contention of the Ld. D.R. appears to be that the

meditation hall forms part of the asset of the two companies.

Therefore, it cannot be created as infrastructure of the assessee-

trusts. The fact that the meditation hall was handed over to the

assessee-trusts is not in dispute. The property tax assessment by

local body also stands in the name of two assessee-trusts.

Therefore, this Tribunal is of the considered opinion that when the

two companies constructed the meditation hall and handed over the

same to the assessee-trusts and the property tax assessment

stands in the name of assessee-trusts, the assessees are the

owners of the property under the provisions of Income-tax Act.

Under the Indian law, a land can belong to one person and the

building can be owned by other person. In the case before us, the

land in which the meditation hall was constructed belongs to a

different person, but the building was constructed by the two

companies on the funds advanced by the assessee-trusts. After

construction, the building was handed over to the assessee-trusts.

Therefore, there was transfer of property within the meaning of

Section 2(47) of the Act. Under the common law, registration of

document is required when the property value exceeds more than

14 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 `100/-. However, under Section 2(47) of the Act, registration of the

document is not mandatory. When the physical possession of the

building is handed over to the assessee-trusts and allowed the

assessee-trusts to enjoy the same, this Tribunal is of the considered

opinion that the assessee-trusts became the owners of the

meditation hall. Therefore, for all practical purpose, the assessee-

trusts become the owner of the meditation hall constructed by the

two companies on the funds advanced by the assessee-trusts. The

treatment of the assessee in the accounts of the companies or

trusts cannot override the provisions of Income-tax Act. In other

words, the provisions of Income-tax Act would prevail over the

treatment of the assessee in the accounts. Therefore, this Tribunal

is of the considered opinion that there is no violation of any of the

provisions of Sections 11, 12 & 13 of the Act. This Tribunal is of the

considered opinion that since the assessee-trusts applied their

funds for establishing an infrastructure in furtherance of their object,

namely, construction of meditation hall, and the meditation hall in

fact was completed and the possession was handed over to the

assessee-trusts, the CIT(Appeals) has rightly allowed the claim of

the assessees under Section 11 of the Act. This Tribunal do not

15 I.T.A. Nos.2063 to 2067/Mds/14 I.T.A. No.2173/Mds/12 I.T.A. Nos.2068 to 2071/Mds/14 find any infirmity in the orders of the CIT(Appeals), accordingly, the same are confirmed.

Order pronounced on 1st October, 2015 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 1st October, 2015.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-VII, Chennai-34 4. आयकर आयु�त (अपील)/CIT(A)-XII, Chennai-34 5. आयकर आयु�त/DIT (Exemptions), Chennai 6. �वभागीय ��त�न�ध/DR 7. गाड� फाईल/GF.