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IME Trust Versus Commissioner of Income Tax, Hapur, Chungi, Ghaziabad

2016 (2) TMI 460 - ITAT DELHI

Registration granted under Section 12AA and registration under Section 80G rejected - extending loan to the trust by the trustees - Held that:- Nothing wrong in extending loan to the trust by the trustees. In the case in hand, the trustees or their relatives have extended loan and transferred land at armís length price as trustees and their families to fulfill the desire of charitable activity have extended loans or transferred the property to the trust. By these actions of the trustees or their .....

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olorable transaction by the ld CIT DR, is also without correct appreciation of facts and circumstances. The ld CIT DR contended that in view of the purchase of land and extending loan by trustee shows that the trust and family members of the trust are acting as one entity is not convincing. In India, generally, the families keep the affairs of the trust with them so that they can advance the purpose of charitable nature for which the trust is established. But, if the family or any trustee abuse .....

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ssee are not colourable transactions and the activities of the trust are genuine till the relevant period of time. Further, the learned Commissioner of Income Tax has not given any finding as regard to the fact that the objects of the assessee were not charitable in nature. - Decided in favour of assesseee - ITA Nos. 6201 & 6202/Del/2013 - Dated:- 13-1-2016 - SH. ABY T. VARKEY, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Sh. Akhilesh Kumar, Adv. For The Department : S .....

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ing to grant registration u/s 12AA of the Income Tax Act, 1961 ignoring the fact that assessee has complied with all the requirement provided under the circumstances of the case. 2. That learned Commissioner of Income Tax failed to appreciate the fact on the record that assessee in an educational trust whose activities are charitable and refused regn. u/s 12AA even without finding objects of the trust as not genuine and hence order is inherently illegal. 3. That learned Commissioner of Income Ta .....

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ng the fact that assessee has complied with all the requirement provided under the circumstances of the case. 2. That, learned commissioner of Income Tax ignored the fact that the assessee has complied with all the conditions laid down in clauses (i) to (v) of sub-sec. (5) of Section 80G of the Income Tax Act, 1961 and as such trust is entitled for approval u/s 80G(5). 3. Because, learned Commissioner of Income Tax has gone beyond the scope of relevant provisions and erred in recording like &hel .....

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t the Act ) before the Commissioner of Income Tax, Ghaziabad, on 22.03.2013. The Commissioner of Income Tax called for a report from his subordinates authorities in respect of the trust. The learned Commissioner of Income Tax himself also examined the activities of the trust. He noted that the Managing Trustee of the trust was also settler of the trust and in financial years 2012-13, the trust had purchased a land having area approximately four hectares for consideration of ₹ 16.54 crores. .....

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er of Income Tax held that the affairs of the trust were not maintained in the transparent and logical manner and he was not satisfied with the affairs and activities of the trusts and accordingly he rejected the application of the assessee seeking registration under Section 12AA of the Act. Aggrieved, the assessee is before us 6. The learned Authorized Representative of the assessee submitted that while granting the registration Commissioner of Income Tax is required to examine whether the obje .....

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t there was nothing wrong in extending loan to the trust by managing trustee or transferring land by one of the trustees to the trust through registered sale deed and having sale consideration at arm s length price. Learned Authorized Representative also drawn our attention to the object clauses of the trust deed placed at page no. 3 of the assessee s paper book and the application of the funds at page 7 to 9 of the assessee s paper book. The learned Authorized Representative also submitted that .....

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e seller of the land was one of the relatives of the trustees and the trust was not having any funds to finance the property, and for that purpose the trust has obtained loan from the managing trustee. According to him, in other way, transfer of property to the trust was a colorable transaction. The learned CIT (DR) also filed submission before us. In the written submission has submitted that the assessee trust was having meager financial capacity and purchased land worth ₹ 16.54 crores wi .....

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unsecured loan and the balance amount of ₹ 11.55 crores was outstanding till 12.09.2013. He further submitted that in view of the transactions, the trust was separated from the family only on the paper and not in conduct of its affairs. In his submission, he further noticed that the settler of the trust was the Chairman-cum-Managing Trustee of the Trust. He thus submitted that settler by principle of proprietary should not be the trustee of the Trust settled by him. In his submission, he f .....

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erstanding of the facts and circumstances od the case. He stated that the transaction of sale and purchase of land is registered sale transaction and transaction was at the value prescribed as per the stamp duty purpose. Further, he stated that it was in correct on the part of the ld CIT DR that settler cannot become managing trustee. According to him, there is no such provision in trust prohibiting the settler in becoming the trustee. 8. We have heard the rival submissions and perused the mater .....

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ed the activity of purchase of land for the purpose of achieving one of its objects of education. In the present case the first condition of charitable nature of object has not been disputed by the Revenue. In respect of the second condition, the learned Commissioner of Income-tax given finding that the trust has not maintained its affairs in transparent and logical manner and transaction made by the trust for purchase of land were highly disproportionate to the known funds available with the tr .....

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ndue advantage has been passed on to the seller or the trust is adversely affected by the transaction. Further, we find nothing wrong in extending loan to the trust by the trustees. In the case in hand, the trustees or their relatives have extended loan and transferred land at arm s length price as trustees and their families to fulfill the desire of charitable activity have extended loans or transferred the property to the trust. By these actions of the trustees or their relatives, the trust is .....

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the ld CIT DR, is also without correct appreciation of facts and circumstances. The ld CIT DR contended that in view of the purchase of land and extending loan by trustee shows that the trust and family members of the trust are acting as one entity is not convincing. In India, generally, the families keep the affairs of the trust with them so that they can advance the purpose of charitable nature for which the trust is established. But, if the family or any trustee abuse his power and authority .....

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e High Court of Gujarat has held that sale of shares at loss by the assessee, was not a colourable transaction. The relevant part of the judgment is reproduced as under: 17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when t .....

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e that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also c .....

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shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of Commissioner of Income Tax v. Sakarlal Balabhai, 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reducti .....

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cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell .....

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