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M/s Sethu Valliammal Educaional Trust Versus The Deputy Commissioner of Income Tax (Exemtions-III)

2015 (11) TMI 115 - ITAT CHENNAI

Denial exemption U/s.11 & U/s.12 - one of the trustees was a minor and not competent to hold the post of trustee - Held that:- A trustee may also disclaim to be a trustee and shall prevent the trust property from vesting in him. A disclaimer by one or two or more co-trustees vests the trust property in the others and makes him or them sole trustee or trustees from the date of the creation of the trust. Thus, if one of the trustees appointed is not competent to contract, he cannot be made as a tr .....

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of the assessee that is not disputed. Moreover, there are no statutory provisions in any Act to debar the family members of the author of the trust to be the trustees of a charitable trust. As long as the objects of the Trust are charitable and for the benefit of the general public at large the charitable nature of the trust cannot be denied.

Therefore, we hereby direct the Ld. Assessing Officer to treat the trust as a charitable trust recognized U/s.12AA of the Act since the registr .....

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Tax(A)-VII, Chennai dated 11.11.2014 in ITA No.127/14-15 passed under Sec.143(3) read with section Sec. 250 of the Act. 2. The Assessee has raised seven elaborate grounds in its appeal; however the cruxes of the issues are that:- 1. The Ld. CIT (A) has erred in upholding the action of the ld. Assessing Officer by denying exemption U/s.11 & U/s.12 of the Act for the following reasons. i) That the induction of a minor Ms.Thara Bhaskaran as a Trustee has rendered the trust void ab-inito. ii) T .....

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tered on 10.02.1989 and recognized u/s. 12AA of the Act by the DEIT(E), Chennai on 02.12.1992 vide order No.DIT(E)/2(204)/92-93, filed its return of income for assessment year 2011-12 on 27.11.2012 admitting 'Nil' taxable income. Subsequently, the case was taken up for scrutiny through CASS. Thereafter on examining the records filed by the Ld.A.R, the Ld. Assessing Officer found that the trust deed dated 10.02.1989 indicated that the trustee Ms.Thara Bhaskaran, D/o Mr.Sethu Bhaskaran was .....

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it has been pointed out that since a minor was appointed as a Trustee as per the trust deduction incorporating the trust, the registration of the trust may become void ab initio. it is submitted that the trust was set up as a charitable trust by Mr. Sethu Bhaskaran as the Founder Settlor of the trust. In the trust deed among other trustees, the Settlor had also named his daughter who was 16 years at that time as one of the trustees. In this context, we wish to humbly submit that there are four e .....

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and the owner must divest himself of the ownership of that property. Concurrence with the law: The trust or its objects must not be opposed to the provisions of any law for the time being in force. It is submitted that all these requisites have been complied with at the time of formation of the trust and the trust was set up by means of a registered trust deed which is also enclosed for your kind reference. It is also submitted that the trust deed was vetted and approved by the Income tax Depart .....

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as a minor at the time of appointment as a trustee of a person who was a minor at the time of appointment does not in any manner affect the validity of the trust." However, the Ld. Assessing Officer rejected the submissions of the assessee and treated the trust as invalid trust and further held ineligible for exemption u/s.11 & U/s.12 of the Act due to the following reasons:- (i) One of the trustees is a minor. (ii) The intention of the trustees is to run the institutions as closely hel .....

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ssing Officer with the following observations:- "Decision 4. The only issue involved in the appeal is whether the trust is a valid one entitled for registration U/s I2A(a) of the Act and in consequence entitled for exemption u/s 11 of the Act or not ? The AO held that the assessee trust is not entitled for exemption u/s 11 of the Act as one at the trustees was a minor and not competent to hold the post of trustee. Perusal of the trust deed dated 10.02.1989 reveals that Ms. Thara Shaskaran o .....

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descendants alone shall become the trustees and succession to the trusteeship shall be only from the families of Sethu Kumaren and Thara Bhaskaran and not from the other trustees. This conditional clause makes the trust as a private property of individuals as rightly pointed out by the assessing officer. When the trust becomes a private trust, Indian Trust Act and Indian Contract Act automatically come into play. In that situation, person competent to contract alone can be a trustee and Miss The .....

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his case, one of the trustees resides abroad and the arguments of the assessee are silent on the status of that trustee i.e. whether she is subject to Indian Income-tax Act or not ? Expediency requires that a trustee should be a person within the reach of the arm of Indian Courts. The trust deed does not contain specific proviso regarding any amendment and approval if any to be obtained from the CIT/DIT(Exernptions) as the case may be. Perusal of the records reveals that Mr. Sethu Bhaskaran, Fou .....

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the trustees reside in foreign countries. 4. Conditional clauses in the trust deed makes the trust a private one. 5. Saving clauses such as permission of the Department for amendment, alteration, etc. are not available in the trust deed. In view of the above, I am of the considered view that the assessee-trust is not entitled to exemption U/s.11 of the Act. Hence, I decline to interfere in the assessment passed by the AO. All the grounds of appeal raised are dismissed in toto." 4. Before us .....

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red by various higher judiciaries. On the other hand, Ld. D.R argued in support of the orders of the Revenue and pleaded that their orders may be confirmed. 5. We have heard both the parties and carefully perused the materials available on record. It is apparent from the orders of the Revenue that the Ld. DIT(E) at the time of granting registration U/s.12AA of the Act has recognized the assessee Trust as a valid charitable trust. When the case came up for assessment, the facts with respect to th .....

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ayum Vs. Mulla Alibhai (1963) 3 SCR 623 and State of Uttar Pradesh Vs. Bansi Dhar & Ors. (1974) 1 SCC 446, it was held that the general principles of trust adumbrated in the provisions of the Trust Act can be applied by invoking the universal rules of equity and good conscience even though provisions of the Trusts Act proprio vigore do not apply to public charitable trusts. A caveat is added therein that care must certainly be exercised not to import by analogy what is not germane to the gen .....

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he time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust-property. In the case of the assessee, on perusing the trust deed it is evident that the trust is created by Mr.Sethu Bhaskaran S/o Sinniah Sethu aged about 55 years on the 10th day of February, 1989 in India. These facts are not disputed. Further, the Author of the Trust Mr.Sethu Baskaran has appointed himself along with Mr.Sethu Kumanan aged 26 years, Mr.L.Sowmiya Murthy, .....

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