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2023 (2) TMI 249 - ITAT CHENNAIExemption u/s. 11 - income derived from property held under the ‘Trust’ - violation of provisions of section 13(1)(c) - HELD THAT:- We find that the sole basis for the AO to deny exemption u/s. 11 of the Act, is in light of the transactions between appellant trust and Shri. Vekkaliamman Builders and Promoters, where the appellant trust has awarded civil contract for construction of building in the earlier financial years. AO, held that said transaction between appellant trust and firm is violation of section 13(1)(c), because the appellant trust did not follow due procedure while awarding tender and further the firm has earned substantial profit which amounts to direct benefit to the interested persons. Tribunal has held in the impugned assessment year that the appellant trust has followed due procedure while awarding tender. It is very clear that the observations of the Assessing Officer that the trust has not followed due procedure is devoid of merits. As regards, second observation of the AO with regard to profit earned by Shri. Vekkaliamman Builders and Promoters, the Tribunal has recorded a categorical finding in their order that the firm has earned net profit of Rs. 21.51 Lakhs and the profit earned by the firm is 4.28% of total turnover, which is quite reasonable. Therefore, from the above it is very clear that the observations of the AO, that the firm has made substantial profit which amounts to direct benefit to interested persons as referred to u/s. 13(1)(c) of the Act is also fails. Therefore, there is no error in the reasons given by the ld. CIT(A) to hold that there is no violation of provisions of section 13(1)(c) in respect of civil contract awarded to Vekkaliamman Builders and Promoters by the appellant trust and for this reason, the benefit of exemption u/s. 11 cannot be denied, and thus, we are inclined to uphold the findings of the CIT(A) and reject ground taken by the Revenue. Whether construction contract which has been granted to the firm in which the managing trustee was a partner would tantamount to service as contemplated u/s. 13(2)(c) of the Act. We find that civil contract has been included in the definition of services as per GST laws and also as per Erstwhile Service Tax laws. Therefore, in our considered view, civil contract awarded to a firm in which the managing trustee of the trust is proprietor is tantamount to services as defined u/s. 13(2)(c) - Since, payment made in pursuant to services rendered by the interested persons is not in excess of consideration paid for relevant work, it cannot be held that there is a direct or indirect benefit to the interested persons as referred to u/s. 13(2) of the Act and violation of provisions of section 13(1)(c) of the Act. We are of the considered view that there is no violation of provisions of section 13(1)(c) of the Act, in so far as payment made by the appellant trust to said Vekkaliamman Builders and Promoters for civil contract - CIT(A) after considering relevant facts has rightly held that there is no violation of provisions of section 13(1)(c) of the Act in respect of civil contract awarded to a firm in which managing trustee of the trust is proprietor. Thus, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue.
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