TMI Blog2015 (8) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals) have not been rebutted by the Revenue with evidences. In the circumstances, we uphold the order of the Commissioner of Income-tax (Appeals) holding that there is no violation of the provisions of section 13(1)(c) of the Act and consequently exemption under section 11 cannot be denied. - Decided in favour of assessee. - I .T.A.No.1753/Mds/2013 - - - Dated:- 30-1-2015 - SHRI A.MOHAN ALANKAMONY AND SHRI CHALLA NAGENDRA PRASAD, JJ. For the Appellant : Mr. S. Das Gupta, JCIT For the Respondent : Mr. D.Anand, Advocate ORDER Challa Nagendra Prasad (Judicial Member).- This appeal is filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-VII, Chennai dated June 5, 2013 for the assessment year 2010- 11. The only grievance of the Revenue in its appeal is that the Commissioner of Income-tax (Appeals) erred in holding that the trust has not violated the provisions of section 13(1)(c) of the Income-tax Act 1961, by incurring development expenses on the land belonging to the trustees. 2. The Assessing Officer while completing the assessment noticed that the assessee-trust incurred expenditure of ₹ 49.84 lakhs towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as the trustees are not the owners of the land. Counsel for the assessee submits that this land was purchased by the trustees on April 28, 2011 and subsequently by gift deed dated May 23, 2013 the land was registered in the name of the assessee-trust as promised by them and therefore, there is no violation of provisions of section 13(1)(c) of the Act. 5. Heard both sides. Perused the orders of the lower authorities. The issue has been elaborately considered with reference to the submissions of the assessee and the findings of the Assessing Officer by the Commissioner of Income-tax (Appeals) and held that there is no violation under section13(1)(c) of the Act observing as under : I have considered the submissions of the assessee. As could be seen from the assessment order and the submissions before the undersigned, the assessee is engaged in teaching and training the students in the field of music and other Indian arts. Any activity which is aimed at protecting, preserving and spreading of arts, culture, and other traditions' etc., are to be regarded as charitable activity. The assessee's main activities/objects are conducting regular classes to its students in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 12AA of the Act, thereby approving the said objects as charitable. Therefore, the trust's activities are charitable in nature and the assessee is eligible for exemption of its income under section 11 of the Act. The Assessing Officer in his order observed that the trust violated the provisions of setion 13(1)(c)/(d) of the Act, by diverting its funds for the benefit of the trustees, their family members. These observa tions of the Assessing Officer are not correct. The assessee's explana tions might not have been supported by any tangible evidences at the particular moment. But, what is to be seen is the real intentions of the assessee (or the parties concerned) behind transaction and their subsequent conduct. If the explanations and contentions of the asses see are backed by subsequent conduct of the assessee, the same cannot be ignored ; and have to be considered as genuine explanations and not an afterthought. In the instant case, the Assessing Officer rejected the assessee's claim of gift of lands for three basic reasons, i.e., (i) the requisite conditions of HIBBA are not fulfilled, (ii) the lands are not registered in the name of the trust as on March 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 11 of the Income-tax Act will only render injustice.' The Assessing Officer's contentions are mainly that the conditions like declaration of gift by the donor, relinquishment of ownership in the property by the donor, acceptance of the gift by the donee and the delivery of possession of the subject of gift, are not fulfilled. These observations of the Assessing Officer are not true. On making the gift by HIBA,the trustees have handed over the possession of the lands to the assessee-trust and thereafter the assessee started the develop mental activities in the said lands. This fact clearly shows that the possession was handed over to the assessee. Further, since the HIBA is a oral form of gift recognised under the Mohammedan law, documentation is not mandatory. When the donor and the donee confirms HIBA the same is to be treated as genuine and complete. Thus, the declaration, acceptance of the gift (by way of HIBA) are deemed to have been fulfilled. Once the HIBA is accepted by the donee (with or without possession) the ownership of the property is also deemed to have been relinquished by the donors. Further, since it was a HIBA, a oral form of gift under the Mohamm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can be drawn in this regard. Further, even the Income-tax Act recognises the transfer of property, when- ● The property is registered in favour of the recipient, or ●. The property is handed over to the recipient for his exploitation and use, or ● The substantial portion of the consideration is paid, whichever is earlier. No doubt, the registration is a legal formality and culmination point in the transfer of property. At the same time, handing over of the possession by the owner to the recipient (buyer or donee as the case may be) for the use and exploitation the latter, the same has to be treated as transfer of property. In fact, based on these facts and position, the capital gains under the Income-tax Act are also computed. Therefore, the 'HIBA' (a oral gift) followed by handing over of the possession of the lands is a clear transfer of prop erty. Mere delay in registration of the gift (HIBA) cannot alter the character of the transaction. Thus, the gift of land (by way of HIBA) which was confirmed by the donors as well as the donee, is to be treated as genuine gift. In any case, the subsequent act of the trustees (donors of the land) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, which term shall mean and include itself, its successors-in-interest, executors, administrators and assigns witnesseth : Whereas the donors herein are the absolute owners of all that piece and parcel of agricultural punja land comprised in the following survey numbers- Sl. No. Survey numbers Extent in 1. 474/1 1.02 2. 475/1 1.12 3. 475/2 1.18 Total 3.32 in all totally measuring an extent of 3 acres and 32 cents or there abouts, in Ketnamalee Village, Gummidipoondi Taluk, Thiruvallur District, originally Ketnamallee Madura Iyer Kandigai Village, within the limits of Gummidipoondi Union and Ketnamallee Village Pan chayat, more fully described in the Schedule annexed hereunder, they having jointly purchased the said Schedule property along with the other extents of land from Mr. S. P. Muttusamy Reddiar, son of Mr. S. Perumal Reddiar, vide sale deed dated November 28, 1996 registered as Doc. No. 2311/19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the above developmental expenses of ₹ 49,84,745, on the lands received from the trustees by way of HIBBA (gift), represents the assessee's own expenses. The trustees, either in the financial year 2009-10 or in the subsequent years have not derived any benefit from the said developmental expenses incurred by the assessee-trust, either directly or indirectly. Hence the abovementioned developmental expenses of ₹ 49,84,745 are totally outside the purview of the provisions of section 13(1)(c) read with section 13(3) of the Act. The case law relied on by the Assessing Officer are, distinguishable on facts. In the cases of DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 (SC) ; CIT v. V. G. P. Foundation [2003] 262 ITR 187 (Mad) ; and Kanahya Lal Punj Charitable Trust v. DIT (Exemption) [2008] 297 ITR 66 (Delhi), the, trusts have advances interest-free loans to the trustees/their concerns. In the case of Action for Welfare and Awakening in Rural Environment (AWARE) v. Deputy CIT [2003] 263 ITR 13 (AP), the trust pledged its fixed deposits as security for the loans obtained by the trustees. Hence the courts have held that such interest-free loans or pledging of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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