TMI Blog2012 (3) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... l help education to the general public. The assessee runs the Habib Hospital which is open to the general public. The return of income was filed claiming benefits of section 11 showing "nil" income. The assessment was completed under section 143(3) of the Income-tax Act on December 29, 2008 determining total income at Rs.41,55,830 after disallowing exemption under section 11 of the Act. During the course of assessment proceedings, the Assessing Officer observed that the assessee-trust came into existence with effect from February 9, 1977 by way of an order of the civil court, Mumbai in suit No. 6712 of 1976 wherein the old trust, i.e., Habib Esmail Memorial Trust constituted vide deed of settlement dated April 3, 1934 was trifurcated into three trusts, one of them being the assessee in question. The Assessing Officer also observed that although the assessee claiming to be charitable in nature, it is exclusively working for the benefit of the Khoja Muslim citizens of India and, therefore, the assessee is prima facie not eligible for exemption under section 11 of the Act as covered by the provisions of section 13(1)(b) of the Act. The Assessing Officer observed that in the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rifurcation. The assessee, therefore, submitted that the fundamental requirement of section 13(1)(b) that a new trust had been created or established is not fulfilled, hence, the learned Assistant Director of Income-tax (Exemption) was wrong in applying the provisions of section 13(1)(b) as the object of this section is to deny to a new trust which have been created or established after April 1, 1962 and cannot be invoked in the case of an old trust which has merely been trifurcated for administrative reasons and to effectuate its objects in a more convenient and focussed manner. It was further submitted that the purpose of the trifurcation was to conduct the educational institution and medical institution in a professional manner in view of the fact that both these objects require different operational and professional skills and it is for the very reason that the hon'ble City Civil Court readily agreed to the application for trifurcation in order to promote effectively the objects of the original trust. The assessee, therefore, submitted that it is beyond doubt that section 13(1)(b) is not applicable in the case of the assessee-trust and it continues to enjoy the exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the Commissioner of Income-tax (Appeals) held as under : "10. I have gone through the facts of the case, conclusion drawn by the Assessing Officer and the submissions made by the assessee's representatives. The moot question to be decided is whether on trifurcation of the main trust, i.e., Habib Esmail Memorial Trust pursuant to the schemes framed by the Bombay City Civil Court, results in creation and establishment of the new trust, with effect from February 9, 1977 and consequently whether such trusts based on its objects of prescribed beneficiaries (Khoja community) attract the provisions of section 13(1)(b) of the Income-tax Act, 1961. Further, whether the trust, based on the nature of income and the terms and conditions of the agreement dated March 5, 1992 entered into with M/s. Vembly Hotels can be deemed to carry on the business of running hotel and accordingly the income received from the said M/s. Vembly Hotels can be treated as business income, and whether it is mandatory for the trust to maintain separate books of account for the said business as envisaged in section 11(4A) of the Income-tax Act, 1961. 10.1 On going through the order of the Bombay Cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the contentions of the assessee-trust's submissions and interpretations of trust deed, order of the Bombay City Civil Court. I feel the Assessing Officer erred in interpreting the facts of the matter and arriving at erroneous conclusions that the two bifurcated trust are establishment and creation of new trust with effect from February 9, 1977 pursuant to the order of the Bombay City Civil Court and that since by its objects, the said new trusts are for benefit of Khoja Muslim Community citizens of India, it is disabled and not eligible for exemption under section 11A of the Income-tax Act, 1961 in view of application of section 13(1)(b) of the Income-tax Act, 1961. 10.6 I therefore, hold that the assessee-trust, i.e., Habib Esmail Hospital and Medical Trust is a divided part of the original trust, i.e., Habib Esmail Memorial Trust of April 1934 and not a new trust established or created pursuant to the order of the Bombay City Civil Court of 1977. Since the said trust is established and created prior to the commencement of the Income-tax Act, 1961, it does not incur any disability of section 13(1)(b) of the Income-tax Act, 1961 and therefore is entitled to exemption under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not involved in running Marine Plaza Hotel because this is being done solely, wholly and exclusively by the conductor under the conducting agreement. Clause 41 of this conducting agreement prevents that the appellanttrust from interfering or doing any activity of running the hotel business. Therefore, the appellant-trust is not required to maintain separate books of account. Hence, section 11(4A) is not applicable at all because the income of the appellant-trust is taxable in respect of the monthly rent which it receives, if at all, such Act. 10.10 On going through the facts narrated in the assessment order, it is noticed that Vembly Hotels is an hLLsi1#Qc (sic) of hotel, and holds all licences and there is no involvement of the trust whatsoever in running the business of hotels and there is no responsibility or any kind of liability in running the said business for the trust. Therefore to construe that the said business was not established and therefore the conclusion drawn by the Assessing Officer as mentioned above is unsustainable. The assessee-trust is merely entitled to a fixed sum of money with prescribed escalation over the tenure of the agreement by whatever name calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f poor and deserving Khojas, maintaining hospitals and giving medical relief, establishing, maintaining, or aiding the schools, etc. It is submitted that after the trifurcation of the main trust, i.e., Habib Esmail Memorial Trust, Habib Esmail Education Trust and Habib Esmail Hospital and Medical Trust, came into existence. It is pointed out that the object of the main trust remains unchanged and the original trust deed continues to be in existence even today, therefore, section 13(1)(b) is not applicable to the case of the assessee. It is submitted that there is only one trust deed which was executed in the year 1934 and there is no change in the original objects, no transfer of assets, and the new trusts are same as the original trust and the entire trust runs as one unit. In so far as income relating to the hotel is concerned, learned counsel for the assessee submitted that the assessee has given the premises to the conductor on the basis of the agreement and the assessee has nothing to do with the business of the hotel as the conductor is responsible for running the business. Learned counsel for the assessee pointed out from the page 15 of the order of the Assessing Officer cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11 of the Act. Accordingly, the Assessing Officer treated the rental income of Rs.25,77,143 received from M/s. Vembly Hotels, as business income. The Commissioner of Income-tax (Appeals) held that the assessee-trust, i.e., Habib Esmail Hospital and Medical Trust is divided part of the original trust, i.e., Habib Esmail Memorial Trust of April 1934 and not a new trust established or created pursuant to the order of the Bombay City Civil Court of 1977. He further held that since the said trust is established and created prior to the commencement of the Income-tax Act, 1961, it does not incur any disability of section 13(1)(b) of the Act, and, therefore, is entitled to exemption under section 11 of the Act. As regards the rental income treated by the Assessing Officer as business income, the Commissioner of Income-tax (Appeals) held that the rental income received by the assessee is not in the nature of business income and that the trust cannot be deemed or construed to carry on the hotel business as held by the Assessing Officer. Following the judgment of the hon'ble Supreme Court in the case of Asst. CIT v. Thanthi Trust [2001] 247 ITR 785 (SC), the Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of profit and this court doth further order that the said new scheme be and the same are hereby allowed to be framed and sanctioned as per drafts annexed and marked Exhibit 'E' and 'F' to the plaint and as Schedules III and IV hereto and this court doth further order that the trusts comprised in the said two new schemes be treated as divided parts of the main trust and be registered as such at the office of the Charity Commissioner, Maharashtra State, Bombay, under the provisions for the Bombay Public Trusts Act, under such numbers as may be assigned to them by the Charity Commissioner in accordance with the provisions of the Bombay Public Trust Act and the rules framed thereunder and this court doth further order that the plaintiffs be and they are hereby appointed as the first trustees of the said divided trusts under the said two new schemes relating thereto." From the above, it is very clear that the new trust be treated as divided parts of the main trust and as one registered with the Charity Commissioner. In our opinion, the Assessing Officer has failed to understand the judgment of the City Civil Court, Bombay in proper perspective. Apart from the above, the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the hotel and settle the disputes. Even the Commissioner of Income-tax (Appeals) gave a specific finding that as per clause 41 the assessee-trust is prohibited from doing business and all the powers are vested with the conductor conducting the hotel business and the conductor is merely required to pay monthly compensation by way of rent to the assessee-trust. In view of the specific findings given by the Commissioner of Income-tax (Appeals), it cannot be said that the assessee is running the hotel business. The assessee being a trust no separate books of account are required to be maintained under section 11(4A) of the Act. Therefore, we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) and do not find any reason to interfere with the order of the Commissioner of Income-tax (Appeals). Accordingly, we confirm the order of the Commissioner of Income-tax (Appeals) and dismiss the grounds raised by the Revenue. I. T. A. No. 5604/Mum/09 Since the issue in this appeal is in material identical to that of I. T. A. No. 5603/Mum/09 (supra), respectfully following the conclusions drawn therein, we confirm the order of the Commissioner of Income-tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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