TMI Blog2017 (6) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... sole purpose of occupancy by the author of the trust or his legal heirs. The part of the property which is subject matter of dispute are 3 shops on ground floor of the building. From the perusal of English translation of Trust Deed the details of the property in possession of the author of the trust at the time of execution of Trust Deed is not discernible. Under such circumstances, we are of considered opinion that this issue needs a re-visit to the Assessing Officer. Representative of both the sides concur on the point that the part of property referred to in the Trust Deed has to be clearly identified - Assessing Officer is directed to ascertain the part of property which was in the possession of author of the trust at the time of execution of the trust in the year 1930, qua which mandate has been given for the exclusive use by the author of the trust and his legal heirs. In case the shops under question are part of the property which was in possession of the author of the trust deed at the time of execution, then the assessee clearly falls within the exception as mentioned in proviso to section 13(1)(c)(ii) of the Act. The benefit of exemption shall not be available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income of the trust is rental income from letting out of commercial properties and interest from bank deposits. During the course of scrutiny assessment in assessment year 2010-11, the Assessing Officer observed that the assessee had given three shops on rent i.e. Shop No. 2, 3 and 4 at 1105, Ravivar Peth, Pune to Shri Purushottam Lohiya, one of the trustees. The rent charged by the trust from Shri Purushottam Lohiya in respect of aforesaid shops is far less than the market rent and the rent charged from other tenants in the same premises. The Assessing Officer held that the assessee has violated the provisions of section 13(1)(c)(ii) and 13(2)(b) of the Act and disallowed the benefit of exemption enjoyed by the assessee u/s. 11 and 12. Thus, addition of Rs.5,89,89,401/- was made in assessment year 2010-11. had given three shops on rent i.e. Shop No. 2, 3 and 4 at 1105, Ravivar Peth, Pune to Shri Purushottam Lohiya, one of the trustees. The rent charged by the trust from Shri Purushottam Lohiya in respect of aforesaid shops is far less than the market rent and the rent charged from other tenants in the same premises. The Assessing Officer held that the assessee has violated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR referred to trust deed at pages 40 to 48 of the paper book and its English translation at pages 49 to 53 of the paper book. The ld. AR submitted that as per the provisions of section 13(1)(c)(ii), the trust shall cease to enjoy the benefit of exemption u/s. 11 12 if any part of the income or any property of the trust during the previous year is used or applied directly or indirectly for the benefit of any person referred to in sub-section 13(3). The person referred to in clause (c) of sub-section (1) includes the trustee of the trust. However, the proviso to section 13(1)(c)(ii) mandates that where the trust is created or established before the commencement of Act, the provisions of clause (2) shall not apply, if it has been specifically mentioned in the trust deed regarding use of any part of property of trust by any trustee or his legal heir. In the present case, the Act in assessment year 2010-11 on the ground that the assessee has violated the provisions of section 13(1)(c)(ii) and 13(2)(b) of the Act. Admittedly, the assessee has let out property to one of the trustee at lower rate. The ld. AR referred to the rent statement for assessment year 2010-11 at pages 6 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fist appeal the Commissioner of Income Tax (Appeals) after properly appreciating the proviso to section 13(1)(c)(ii) of the Act reversed the findings of Assessing Officer. The ld. AR prayed for setting aside the order of Commissioner of Income Tax (Appeals) in assessment year 2010-11 and confirming the order of Commissioner of Income Tax (Appeals) in assessment year 2011-12. 5. Per contra, Shri A.K. Modi representing the Department vehemently defended the findings of Commissioner of Income Tax (Appeals) in assessment year 2010-11. The ld. DR submitted that the assessee can take the benefit of proviso to section 13(1)(c)(ii) provided the assessee is in occupation the property has mandated in the terms of trust. The ld. DR referring to clause 2 of the trust asserted that the property mentioned in trust deed is the second floor of the building used for residential purpose at the time of creation of trust and not the shops on the ground floor. 5.1 The ld. DR further pointed that the assessee in his submissions before the Commissioner of Income Tax (Appeals) for assessment year 2011-12 has admitted the fact that the shops were given on rent to Shri Purushottam Lohiya during the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub- clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub- section (3) in so far as such use or application relates to any period before the 1st day of June, 1970 ; A bare perusal of the above provisions of section 13(1)(c)(ii) show that in case any income or property of the trust is used either directly or indirectly for the benefit of trustee or any person referred to sub-section (3) of section 13, the benefits granted to the trust u/s. 11 shall be forfeited. However, the first proviso to section 13(1)(c) provides an exception. According to first proviso benefit derived by the trustee or the person mentioned in sub-section (3) shall not debar the trust from availing the benefit of section 11 and 12, if : (i) the trust is created or established prior to the commencement of the Act; and (ii) the benefit extended to the trustee or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the exception as mentioned in proviso to section 13(1)(c)(ii) of the Act. 10. The assessee has raised an alternate plea by way of additional ground to restrict the addition to the extent of violation made u/s. 13(1)(c)(ii) and 13(2)(b) of the Act. The Co-ordinate Bench of the Tribunal in the case of Sinhgad Technical Education Society Vs. ACIT in ITA No. 320/PUN/2010 for assessment year 2006-07 decided on 14-12-2016 has held that there cannot be denial of exemption in toto u/s. 11 of the Act. The benefit of exemption shall not be available to the extent there is violation of provisions of section 13(1)(c) and the same be brought to tax at the maximum marginal rate. In case the Assessing Officer comes to the conclusion that shops are not part of the property as mandated in the Trust Deed, the addition has to be made to the extent of violation of provision of section 13(1)(c)(ii) and 13(2)(b) of the Act. The Assessing Officer before deciding this issue afresh in accordance with our directions shall grant opportunity of hearing to the assessee, in accordance with law. 11. In view of our above findings both the appeals i.e. the appeal by the assessee in assessment year 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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