TMI Blog2005 (6) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... act that none of this money had become irrecoverable, funds so parked have actually yielded benefits commensurate with the purpose for which they were parked. 3. The learned CIT (Appeals) also erred (a) In not affording a further opportunity to the appellant to rebut his erroneous sequence of thoughts as appeared from the appellate order, (b) In relying upon certain decisions that are not relevant for the facts of the case, and (c) In not considering the numerous decisions relied upon by the appellant Trust. 2. The brief facts of the case are that assessee is a public trust founded by late A.R. Ramasami vide trust deed dated 10-3-1975. Originally trust was registered under section 12A on 17-6-1976 and it also obtained exemption under section 80G upto 31-3-1981, after which no exemption under section 80G was sought. Returns were also not filed. As no returns were being filed, a survey under section 133A was conducted on 22-3-2001, during which it was found that surplus income of the trust had been diverted for non-charitable purpose, viz., the funds have been utilized by various firms of family members, in which the descendants and relatives of late A.R. Ramasamy, the foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in object got vitiated and it did not exist solely and exclusively as on educational institution." "It is, therefore, clear that the various loans and advances given by the appellant trust to its sister concerns has nothing to do with its (the trust) own objects but, on the contrary, were intended to facilitate and advance the business causes of the sister concerns." "Firstly, it has not been clarified by the appellant if interest was charged by it on all the loans and advances without any exception. No explanations have been furnished in this regard." "Secondly, the accounts of the concerned parties show that interests were more often than not being credited to the appellant's accounts rather than actually paid." "Thirdly, when it comes to loans and advances involving huge amounts, mere charging of interest cannot be regarded as adequate consideration. It is difficult to conceive of securing such huge amounts as loans except by furnishing securities. Furnishing of security as a measure of adequacy of consideration is not only a common business/banking practice but is also something recognized in law. In the Income-tax Act, 1961, section 13 refers to security along with int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years in the name of land as well as site. But not a site or even a part of it was purchased from M/s. A.R.R. Nutcon Products till the year ended 31-3-2002..." "These contradictions and incongruities can be resolved only if the transactions are seen as group affair, nay a family affair, where the main objective was to keep the business of the group going by using funds wherever available. The reference in the resolution and in the agreement to purchase of land at Melacauvery can only be seen as a mere cover for pursuit of the above objective. That it is so also gets credence from the fact that while the resolution on the subject had been passed as early as on 20-8-1996, the deal had not materialized even by 31-3-2002." "The Trial Balance of M/s. A.R.R. Trust as on 28-2-2001 shows advances given to Shri S. Subramanian, trustee of the appellant trust (Rs. 6,00,000), S. Suganthi (Rs. 8,32,627), M. Latha (Rs. 8,32,627), R. Makesh (Rs. 8,32,627), S. Rengarajulu (Rs. 4,97,400) and R. Swaminathan (Rs. 4,97,400)." "The very fact that M/s. A.R.R. Nutcon Products was permitted to enjoy huge funds without payment of any interest would go to show that the so-called land purchase advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that both Assessing Officer as well as CIT (Appeals) have admitted that assessee was running educational institution. The trust was formed on 10-3-1975 and right from the beginning it has been running educational institution in the form of schools. It started with students strength of 40 which has over a period of time increased to 2200. The trust is basically running two schools known as ARR Matriculation High Secondary School known as Unit-I, and ARR Matriculation School known as Unit-II from 1998. The trust is also engaging students from its own institution as well as other institutions by awarding financial aid, scholarship, etc. He further submitted that main objects of the trust were for education, awards, scholarships, etc. He submitted that trust had other objects also like construction and running of choultries, community halls, provision of medical relief by construction or helping in construction of hospitals, dispensaries etc. and provision of medical relief to the poor and needy and relief to persons in distress due to flood, earth quake, fire etc. Though Assessing Officer denied exemption under section 10(22) because of this reason that assessee had other objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in this system because assessee as well as business organizations were following accrual system of accounting and credit to account is as good as payment under this method of accounting. He further submitted that there is no substance in the observation of the CIT (Appeals) that such loans were given without adequate security because firstly, there is no requirement for parking the funds in any particular manner and in any case there is no requirement for taking security. Assessee trust had invested the monies in business organizations where trustees were having substantial interest thus assessee trust was fully secured. He also submitted that there is no substance in the observation of the CIT (Appeals) that assessee had given advances to sister concerns before the idea of purchasing land from M/s. A.R.R. Nutcon Products had even occurred. He submitted that the land in question was taken possession much before the actual purchase of land and same was being used for the purpose of playground. In this regard, he referred to the-affidavit of Smt. Beullah Sundar Singh, being Headmistress of the School and also map of the school, where the relevant vacant land is shown as playground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trust, the secretarial staff is not highly educated and some lapses may be there, but the important question for deciding this issue is whether other party was legal owner of such land and whether same was taken possession by the trust or not is not disputed at any stage. He submitted that resolutions, which have been referred to by CIT (Appeals) were available at the time of survey, which clearly shows no manipulation has been made later on. The fact that trust started the 2nd unit of school in July, 1998 would prove that transaction regarding purchase of land was genuine. As far as advances to other concerns is concerned, again lands were already taken possession of and relevant deeds have also been executed. Registration in such cases was also delayed because of the pendency of application for waiver of stamp duty. In these circumstances, there is no diversion of funds as alleged by the lower authorities and assessee is entitled to exemption under section 10(22)/10(23C). 11. At this juncture, Bench specifically directed the ld. counsel of the assessee to file copies of sale deeds for purchase of land by original owners i.e. parties who have ultimately sold the lands to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not being pursued by the assessee trust and they remained only on the paper. Therefore, exemption under section 10(22)/(23C) cannot be denied on this account. In this regard, the issue has been adjudicated by him vide para 15 of his order, which is reproduced as under:- "15. The appellant is undoubtedly an educational institution. It has been accepted by the Assessing Officer that the appellant has been running educational institutions for years together. But, admittedly, the appellant trust had a few other objects too. It cannot be disputed that these other objects viz. construction and running of choultries, community halls, etc.; providing medical relief by constructing or contributing to the construction of hospitals; providing relief to the poor and needy; and arranging for relief to persons in distress due to flood, earthquake, riots, etc., are not incidental to the object of advancing and promoting education. Therefore, the question that arises is whether the existence of these objects could disentitle the appellant from availing the benefit contemplated in section 22. The Assessing Officer has argued that it would. The appellant has argued to the contrary. In my opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have substantial interest. In addition to this, we would also like to go through the issue raised before us by the ld. DR., whether when surplus is also generated, it can be said that the trust is existing solely for the purpose of education or not. Let us take the second issue first and in this connection, we would like to refer to the decision of the Hon'ble Supreme Court in the case of Aditanar Educational Institution referred to by the ld. DR, where it was held as under:- "The language of section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purpose of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether, on an overall view of the matter, the objective is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were lent out to various business organizations in which trustees or their relatives were having substantial business interest. But from the statement showing details of advances placed at pages 49-51, we find that interest has been charged on such advances @18% p.a. wherever there is a debit balance in the account and such interest has been charged even upto assessment year 1999-2000. Interest is not charged because later on such advances have been treated as land advances. 21. As far as observation of CIT (Appeals) is concerned that interest was never paid and no security etc. was taken has no force. In this regard, first of all, we would like to point out that there is no requirement under section 10(22) that fund should be invested in specified asset as contemplated under section 11(5) or in any other particular manner. In this regard, Circular No. 712, dated 25-7-1995 of the Board is very relevant which reads as under:- "It is hereby clarified that since section 10(22) does not impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in the modes specified under section 11(5) of the Income-tax Act. This clarific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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