9911796707
TMI Blog2011 (4) TMI 1494X X X X Extracts X X X X X X X X Extracts X X X X ..... essed u/s 143(1) on 14.2.2006. Subsequently, regular assessment was made on 24.12.2007. 3. The trust was created by a deed dated 28.5.1997 by Shri M.R.Sarangapani, S/o Shri M.A.Ramanandam, his wife Smt.S.Shaalini, son, Shri Harshavardhan and daughter Smt. Vandhana being its trustees. The assessee has been running the following institutions: i) Merit Swiss Asian School of Hotel Management(a residential) school, conducting Hotel Management Courses at Ooty ii) Merit International Institute of Technology(awarding Diploma courses) at Ooty iii) Alagappa University Study Centre (Distance Education Programme) at Ooty. 4. For running the above institutions, the trust had taken and occupied the premises owned by M/s Merit Resorts Pvt. Ltd, Chennai, M/s Nilgiris Enterprises, Bangalore and M/s Prince Palace, Ooty, on lease. Lease agreements were executed with the above concerns. For the purpose, the trust had paid rental advances to M/s Merit Resorts Pvt. Ltd(MRPL in short) for Merit International Institute of Technology premises, Dodabettah, Ooty. It also paid lease rentals and lease rental advances to M/s Nilgiris Enterprises, Bangalore for Merit Swiss Asian School of Hotel Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund the lease rental advance without any interest. 8. MRPL hereby confirms having received advance lease rentals of ' 25,74,748/- from MIEF through Merit Inns Limited, Chennai upto 31.3.1998. 9. The advance for lease rental accommodation presently agreed as above shall be paid by MIEF from time to time as and when demanded by the MRPL and after satisfying themselves about the progress of construction of the Hostel. 12. MIEF shall use the Schedule mentioned property for Hostel accommodation to its students of Hotel Management Academy activities and MIEF shall not convert the said property into any other use. 18. MIEF and MRPL shall enter into comprehensive lease deed on completion of Hostel Accommodation by the MRPL." 6. The trustees of assessee-trust are also the Directors of M/s MRPL. MRPL has constructed accommodation in Ooty out of the funds received from the assessee-trust in which the trust is running its Hotel Management Academy. The assessee-trust, admittedly, has not paid any lease rent to MRPL. It has paid lease rental advances. According to the Assessing Officer, the lease rental advance is nothing but an investment or at best, deposit and are hit by sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ennai, by mortgaging this property. The property was later sold by Canara Bank on account of default of loan taken allegedly by misusing the name of the company and trust on the force of forged documents and financial statements. Smt Shaalini, Director of the company filed a case before the Debt Recovery Tribunal for setting aside the sale. A letter was received by the assessee on 17.12.2007 calling for its reply. The assessee filed its reply on 20.12.2007 and claimed as follows: (i) Shri S.Harshavardhan and others namely Nithya Reddy and Nithesh Ranka alleged to have furnished forged documents, forged financial statements in the name of the company M/s Merit Resorts Pvt. Ltd to the captioned bank as if the trust (i.e) Merit international Education Foundation is paying huge rentals to the company and obtained credit facilities and later defaulted. The name of the company and the trust being surreptitiously used and the contents of all the documents are evidently false. (ii) The document/financial statement furnished with said bank were utter falsehood and forged one. The name of the company and the trust and the present directors/trustees Shri M.R. Sarangapani and Smt. S. Shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income tax(Appeals) erred in holding that the transaction of lease is not genuine. 4. The Commissioner of Income tax (Appeals) ought to have deleted the interest u/s 234 A and 234 B. 5. The conclusion of the Commissioner of Income tax (Appeals) that the Appellant is not eligible for the exemption u/s 11 is not just, proper or tenable either on facts or in law. " 10. We have considered the rival submissions in the light of the material available on record including the paper books filed by the trust. We have found it for a fact that M/s Merit International Educational Foundation was registered as a Public Charitable Trust u/s 12AA of the Act vide certificate dated 28.7.1998 issued by the Director of Income-tax(E), Chennai. The trust was created by a deed dated 28.5.1997 as stated in the earlier part of this order. The main object of the trust is to start, run and manage Hotel Management Academy Courses, etc. To pursue the object, the trust had taken on lease three premises owned by three companies as mentioned above. The trust had undisputedly paid lease rental advances to MRPL for the purpose of accommodating Merit International Institute of Technology. It has also pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the trust over a period of years, the company had put up construction and provided the accommodation in Ooty for the academy to carry on its activities. The total lease rental advances outstanding as on 31.3.2005 were ' 9,67,97,188/-. In this property, Merit International Institute of Technology was being run. It is also an undisputed fact that neither the trust had paid any lease rental nor the company had received any lease rent till date. The trust wants these lease rental advances paid to the company to be treated as application of its funds as it had the right to use the property and was also in possession of the property in its entirety. The lease rental advances amounts were to be treated as income in the year of their refunds. It is also an undisputed fact that the company had not received nor derived any benefit from the trust and the trust is holding lien on the property for the lease rental advances given for the company. 11. To cut the long story short, the trust was registered u/s 12AA of the Act and is providing Hotel Management Education. For the purpose of running the educational institution, the trust has taken on lease and occupied the premises owned by M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes in the taxable territories for the purposes for which the trust had been created. In the light of the above decision of Apex Court it was argued that this case directly applies to the facts of the given case. Reliance was also placed on the decision of the Hon'ble Kerala High Court rendered in the case of CIT vs St. George Forana Church, 170 ITR 62, wherein it has been held that the word "applied" in the context means that actually applied or actually spent. Such application may be by way of adding to the corpus of the fund and not merely in the form of revenue expenditure for implementing the purpose of the trust. Further reliance was placed on the decision of Hon'ble Delhi High Court rendered in the case of Director of Income-tax(Exemption) vs Alarippu, 244 ITR 358. In this case, it has been held that in order to constitute an investment, the amount laid down should be capable of and result in any income, return or profit to the investor and in every cases of investment, the intention and positive act on the part of the investor should be to earn such income, return or profit. In order to constitute an investment, the money shall be laid out in such manner, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the trust continued to enjoy the property without paying any lease rentals. Nothing has come on record to suggest that any fund of the trust was utilized for the personal benefit of the directors of the company, MRPL, who are also the trustees of the assessee-trust. The duty is cast upon the Department to prove the misuse of the funds of the trust in the manner forbidden by section 13(3) of the Act. Support in this regard can be drawn of the decision of the Hon'ble Allahabad High Court rendered in the case of CIT vs Kamla Town Trust, 279 ITR 89. As stated above, it is only the trust, which has been benefited by taking the property on lease by utilizing the property belonging to the company and without paying any lease rental. We do not find any reason, whatsoever, to deny the benefit of section 11 to the assessee- trust. Concomitantly, we do not find any violation by the trust of any provisions of section 11 and/or of section 13 of the Act. We, therefore, hold that the assessee is entitled to exemption as provided u/s 11 of the Act. Having held so, interest levied u/s 234A and 234B will also not survive. We, therefore, set aside the order of the ld. CIT(A) and allow the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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