Tca/1040/2014 Of M/S Natya Sankalpaa v. Director Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR. JUSTICE R. SUDHAKARANDTHE HON'BLE MS. JUSTICE K.B.K. VASUKI Tax Case Appeal No. 1040 of 2014 M/s. Natya Sankalpaa2 Kilpauk Garden Road1[st] street, Chennai – 10. ...Appellant/Respondent-vs- Director Income Tax (Exemptions)Chennai. ...Respondent/Appellant Tax Case Appeal under Section 260 A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal, Madras"B” Bench, dated 07.04.2014 in I.T.A. No: 1167/Mds/2013 for theAssessment year 2009-2010 and against the order of the Commissionerof Income Tax (Appeals) - XII, Chennai - 34, in ITA No.185/2012-13dated : 25.02.2013 for the Assessment year 2009-2010 and againstthe order of the Assistant Director of Income Tax (Exemptions) -IV, Chennai in PA/GIR No.AAA TN 3596 N, dated 29.12.2011 for theAssessment year 2009 - 2010. The appellant assessee Trust was formed by Smt. UrmilaSathyanarayanan for promoting Bharatanatyam and other forms ofIndian Classical Dance. The other Trustee of the Assessee Trust isSri.A.D.Sathyanarayanan, husband of Smt.Urmila Sathyanarayanan.The land in question belong to Sri.A.D. Sathyanarayanan as anindividual and in order to extend his goodwill for the benefit ofhis wife's endeavour to promote the classical dance, he permittedthe Trust to construct a building by utilising the funds of theTrust for the purpose of promoting Bharatanatiyam and other Indian https://hcservices.ecourts.gov.in/hcservices/ Classical dances. 2. The assessee trust is registered under Section 12 AA ofthe Income Tax Act, 1961, (hereinafter referred to as the Act) on23.12.1997. The Assessing Officer, while completing the assessmentin the year 2009-2010, denied exemption under Section 11 of theAct, as claimed by the assessee, stating that the income of theassessee Trust fell within the ambit of amended provisions ofSection 2 (15) of the Act and that the assessee trust has violatedthe provisions of Section 13 (1) (c) of the Act. On a challengemade to the assessing order, the Commissioner allowed the appealin favour of the Trust. The Tribunal reversed the said finding.Hence, the present appeal by the assessee. 3. The finding of the Tribunal is that,“ 6. ... ... .... Even though the trust is notpaying any rent or compensation to the trustee for theland used by the assessee trust which was belonging toone of the trustees, since the assessee trust is usingits income for construction of the building on the landbelonging to one of the trustees amount to applying theincome of the trust for the benefit of the trustee whicis certainloy falls under Section 13 (1) (c) of theAct. The trustee is certainly the beneficiary as onthe date of construction of the building. As long asthe trustee is holding the property and the trust isusing the said property by putting up building /structure for conducting dance classes, trustee isenjoying the benefit indirectly though not directly.Therefore, benefit to the trustee cannot be completelyruled out.” 4. In this appeal, we are now concerned with the issuerelating to the denial of benefit on account of the allegedviolation of Section 13 (1) (c) of the Act. 4. In this appeal, we are now concerned with the issuerelating to the denial of benefit on account of the allegedviolation of Section 13 (1) (c) of the Act. 5. It is the specific case of the appellant that there is anagreement dated 13.02.2013 whereby as and when the Trust decidesnot to use the premises which has been constructed for theaforesaid purpose, the individual Sri.A.D.Sathyanarayanan would paythe trust the value of the building so constructed. There is norent or fee or such other claim by the said individual on the trustfor the utilisation of the land on which the building isconstructed by the Trust. According to the assessee no income isderived to the individual Sri.A.D.Sathyanarayanan as a Trustee. Itis the further contention of the learned counsel for the assesseethat the property is also not built for the benefit of theindividual Sri.A.D.Sathyanarayanan who happens to be one of thetrustee. Therefore, the contention of the Department that there is violation of Section 13 (1) (C) is not justifiable. 6. We are unable to countenance the finding of the Tribunalthat the present act would fall under the definition of the term“Trustee” enjoying the benefit directly or indirectly because theland in question has been parted away by the individual to theTrust. The trust has put up the construction with a clause that itshall return back the building to the individual and receive thecompensation for the value of the building so put up. It is notthe case of the Department that such part of the income or any partof the property of the trust or the institution is directly orindirectly used or built for the benefit of the persons referred toin sub section (1) (c) (3) of Section 13 of the Income Tax Act,1961 which reads as follows : “SECTION 13 (1) (c) in the case of a trust for charitable orreligious purposes or a charitable or religiousinstitution, any income thereof- (i) if such trust or institution has been created orestablished after the commencement of this Act and underthe terms of the trust or the rules governing theinstitution, any part of such income enures, or(ii) if any part of such income or any property ofthe trust or institution (whenever created or established)is during the previous year used or applied,directly or indirectly for the benefit of any personreferred to in sub-section (3);... ... ... .... ...(3) The persons referred to in caluse (c) of sub-section (1) and sub-section (2) are the followingnamely :-(a) ... ... ...(b) ... ... ...(c) ... ... ... (cc) any trustee of the trust or manager (by whatevername called) of the institution ; ” 7. The fact that the Trust, during the assessment year inissue, constructed the building in question and spent amounts forthe entire construction is not in dispute. The fact that the Trusthas not paid any amount as rent, licence fee, lease fee or suchother fee to the individual Sri.A.D.Sathyarayanan is also not indispute. The issue that is raised by the Department is that whileaccepting that the Trust has not paid any rent or any compensationto the trustee for the land used by the assessee trust whichbelongs to one of the trustees, the income for construction of thebuilding on the land belonging to one of the trustee would amountto income for the benefit of the trustee which will fall under https://hcservices.ecourts.gov.in/hcservices/ 7. The fact that the Trust, during the assessment year inissue, constructed the building in question and spent amounts forthe entire construction is not in dispute. The fact that the Trusthas not paid any amount as rent, licence fee, lease fee or suchother fee to the individual Sri.A.D.Sathyarayanan is also not indispute. The issue that is raised by the Department is that whileaccepting that the Trust has not paid any rent or any compensationto the trustee for the land used by the assessee trust whichbelongs to one of the trustees, the income for construction of thebuilding on the land belonging to one of the trustee would amountto income for the benefit of the trustee which will fall under https://hcservices.ecourts.gov.in/hcservices/ Section 13 (1)(c) of the Act unmindful of the agreement whichstates that in the event of the trust vacating the building infuture, the trustee shall compensate the trust for the value forthe building in question. De hors this agrement, there is nothingto show that there was any manner of use of application of theincome or property of the Trust to the person set out in subsection 13 (1) (3) (c) of the Act. It is only when there is anapplication of income or any part of the property or buildingdirectly or indirectly put to use for the benefit of personreferred to above, the provision will get attracted we do not findsuch application in the facts of the present case. We are inagreement with the decision arrived at by the Commissioner Appealson this point. 8. Yet another plea raised by Mr.J. Narayanaswamy learnedStanding Counsel appearing for the Department is that theacquisition of ownership of the building to the trustee itself is abenefit in the form of right and therefore, it deemed to be anapplication of fund of the trust for the benefit of the trustee.That contention is replied by Mr. N.V. Balaji, learned counselappearing for the appellant / assessee stating that there is novesting of the property on the trustee per se because, as per theagreement, on surrender of the building the trustee will have topay compensation and, therefore, the question of application offunds for the benefit of the trustee does not arise. The definitionof “Beneficial Owner” in terms of Black Law Dictionary, relied uponby the counsel for the department, will not further the case of thedepartment because as the definition of “ Owner ” also has arestrictive meaning as in this case. We extract the said portionhereunder :“ Owner. The person in whom is vested the ownership,dominion, or title of property, proprietor. He who hasdominion of a thing, real or personal, corporeal orincorporeal, which he has a right to enjoy and do with ashe pleases, even to spoil or destroy it, as far as the lawpermits, unless he be prevented by some agreement orcovenant which restrains his right. ” //True Copy// Sub Assistant Registrar gp To 1. The Director Income Tax (Exemptions)Chennai. 2. The Commissioner of Income Tax (Appeals)-XII,121, Mahatma Gandhi Road,Nungambakkam,Chennai - 600 034. 3. The Assistant Director of Income Tax (Exemptions) IV,Chennai - 34. 4. The Assistant Registrar,The Income Tax Appellate Tribunal,A3, 2nd Floor, Rajaji Bhavan,Besant Nagar, Chennai - 90. 1 CC to Mr.N.V.Balaji, Advocate SR.No. 29754 T.C. (A) No: 1040 of 2014BVR (CO)PSI (31.07.2015)