TMI Blog2024 (4) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... inquishment by the assessees of their position as trustees HELD THAT:- We find ourselves unable to accept the finding of the Tribunal that the amounts received by the assessees as consideration for relinquishment of their trusteeship would qualify as a capital receipt for the purpose of the I.T. Act, and further that in the absence of any statutory provision under the I.T. Act that provides for a determination of the cost of acquisition of the asset, the capital gains cannot be assessed. A perusal of the trust deed in the instant cases does not indicate that any power was conferred on the trustees to relinquish their position as trustees en banc . Rather, as noticed by the Supreme Court in Sheikh Abdul Kayum and Others v. Mulla Alibhai and Others and Others [ 1962 (8) TMI 83 - SUPREME COURT] a person who is appointed as trustee is not bound to accept the trust, but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the court or with the consent of the beneficiaries or by the authority of the trust deed itself. We are therefore of the view that the resignation/relinquishment by the assessees, of their position as trustees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand of the Assessing Authority, the CIT (A) found that the amount of Rs. 8 crores received as donation by St. Thomas Education Trust could not be considered as income in the hands of the above assessees who were trustees in the said St. Thomas Education Trust. This view of the CIT (A) against which the Department had preferred an appeal before the Tribunal, was upheld by the Tribunal. We also see no reason to take a different view since it is not in dispute that the payments in question were actually made to the trust and not to the trustees in their individual names. - HONOURABLE DR. JUSTICE A.K. JAYASANKARAN NAMBIAR AND HONOURABLE MR. JUSTICE SYAM KUMAR V.M. For the Appellant : By Adv. Sri. P.K. Ravindranatha Menon (SR.), By Sri. Jose Joseph, SC For Income Tax, By Adv. Smt. Susie B Varghese (K/1300/2019) For the Respondent : By Adv. Sri. Anil D. Nair (Sr.), By Adv. Sri. R. Sreejith, By Adv. Smt. Telma Raju, By Adv. Sri. Sangeeth Joseph Jacob, By Adv. Smt. Edathara Vineeta Krishnan, By Adv. Sri. P.K. Biju, By Adv. Smt. Cristina Anna Paul JUDGMENT DR. A.K. JAYASANKARAN NAMBIAR, J. As all these appeals filed by the Revenue arise out of a common order dated 30.09.2019 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement. The agreement also provided for sale of 55.15 acres of land belonging to some of the erstwhile trustees for a consideration of Rs. 12.50 crores. 3. A search under Section 132 of the Income Tax Act [hereinafter referred to as the I.T. Act ] was conducted at the residence of the Sri. Jose Thomas, Smt. Gracy Babu and Sri. P.J. Paulose on 04.03.2009 and certain documents were seized. An unsigned draft agreement dated 23.02.2009 was found which indicated that the amount envisaged for settlement of liability was Rs. 43.50 crores and that the value of the rubber estate extending to 55.15 acres of land was Rs. 6.50 crores. Certain other documents relating to fee collection from students in excess of what was fixed by the Government, and investment details of trustees etc. were also seized, but those particulars are not of any concern to us in these appeals. 4. Assessments were completed under Section 143(3) read with Section 153A for the assessment years 2003-04 to 2008-09 and under Section 143(3) for the assessment year 2009-10 in relation to the persons who were searched, namely, Gracy Babu, Jose Thomas and P.J. Paulose, who were the heads of the respective trustee families ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the same is not substantiated by bills or vouchers? 6. In I.T.A. No. 47/2020, the following substantial questions of law have been raised: (i) Whether the trustees of a public charitable trust have a right to trusteeship and if they need to be compensated for relinquishing such right ? (ii) Whether the trustees are entitled to such benefits from the trust other than remuneration for services rendered by them ? (iii) Whether the ITAT was right in law in deleting the addition of the amount received by the trustees as 'income from other sources', in the light of the view that no trustee is entitled for a right of trusteeship ? (iv) Whether the trustees can modify the trust deed and sign agreements, subsequent to search, as an afterthought, to suit their needs and use it to their advantage in the guise of tax planning and is not such a conduct one of absolute lack of trust ? 7. The additions to the income of the trustees by way of excess consideration received for the sale of the rubber plantation was made in relation to Jose Thomas, Gracy Babu and Reena Jose for the assessment years 2009-10 [for all three] and 2010-11 [for Jose Thomas and Gracy Babu]. While the Assessing A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A), the right of trusteeship is not legally enforceable right and it cannot be brought into the ambit of definition of capital asset and the consideration received on transfer cannot be treated as 'income from capital gain'. The CIT(A) treated it as income from other sources so as to tax the same. This finding of the CIT(A) is not proper. The assesses herein were holding trusteeship in the Carmel Educational Trust which was relinquished in favour of trustees of Believers Church, and this right is nothing but a capital asset. Had the Carmel Educational Trust survived as it is, then they have the right to continue as a Trustee throughout their life time. Once it has ceased to exist and relinquished the right of trusteeship in favour of the new trustees in Believers Church, the consideration received for such relinquishment is nothing but a capital receipt and gain on such transaction cannot be considered as income from other sources . 11.5 The contention of the Ld. AR is that since there is no cost of acquisition, it is not possible to compute capital gain as section 55(2) of the I.T. Act does not include this kind of asset as capital asset. For better understanding, we wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange: Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil; (b) in relation to any other capital asset - (i) where the capital asset become the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1 day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1 day of April, 1981, at the option of the assessee; (iii) where the capital asset became the property of the assessee on the distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains on the amount of Rs. 35 lacs after deducting an amount of Rs. 7 lacs as cost of acquisition. The Department and assessee challenged the decision before the Tribunal and the Tribunal relied upon the Judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR and the amendment to section 55(2) of the Income Tax Act and held that the assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax. The Department's Appeal to the High Court was dismissed and that is how it approached the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble Supreme Court held as under: '(8) In 1981 this court in CIT v. B.C. Srinivasa Shetty(1981) 128 ITR 294; (1981) 2 SCC 460 held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets for the purposes of the provisions relating to capital gains was met. In other words, the cost of acquisition would be taken as determinable but the rate would be nil. (11) The amendment took effect from 1 April, 1995 and accordingly applied, in relation to the assessment year 1995-96 and subsequent years. But till that amendment in 1995, and therefore covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not in fact be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that CIT v. B.C. Srinivasa Shetty's case [1981] 128 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt and assessable if at all only under item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. ( See S. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 1TR 700 (SC). (17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT (1966) 61 ITR 428 (SC) . 11.8 Thus, the conclusion of the Supreme Court is that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head Capital gains as opposed to assets in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust he cannot renounce the duties and liabilities except with the permission of the court or with the consent of the beneficiaries or by the authority of the trust deed itself. The relevant portion of the said decision reads as under: (16) There cannot, in our opinion, be any doubt about the correctness of the legal position that trustees cannot transfer their duties, functions powers to some other body of men and create them trustees in their own place unless this is clearly permitted by the trust deed, or agreed to by the entire body of beneficiaries. A person who is appointed a trustee is not bound to accept the trust; but having once entered upon the trust he cannot renounce the duties and liabilities except with the permission of the Court or with the consent of the beneficiaries or by the authority of the trust deed itself. Nor can a trustee delegate his office or any of his functions except in some specified cases. The rules against renunciation of the trust by a trustee and against delegation of his functions by a trustee are embodied, in respect of trusts to which the Indian Trusts Act applies, in S. 46 and 47 of that Act. These sections run thus:- 46. A trustee who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be entitled to govern, manage and administer the affairs of the school above. These trustees shall have the power of framing rules and regulations from time to time for the benefit and the efficient running of the school, and they shall have the power to appoint new trustees from time to time in accordance with the rules and regulations on behalf hereof. All the movable and immovable properties connected with the said school shall come to vest in the trustees and they shall be managed and administered in accordance with the rules and regulations framed on that behalf. The trustees for the time being shall have the power to alter and cancel the rules and regulations and to frame new ones instead thereof at the time when necessary. The treasurer shall have the power to open the cash account in some reliable bank and he shall always arrange for cash dealings to the benefit of the said school in accordance with the holy law of Islam. (Shariat). (20) The provision for the appointment of new trustees cannot by any stretch of imagination be held to mean the substitution of the old body of trustees by a new body. That provision only permits the old trustees to add to their number. Nor d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip, and hence, had to be brought to tax in their individual hands. In appeals before the First Appellate Authority, the Commissioner of Income Tax (Appeals) [CIT (A)] found that the evidence obtained in the course of search proceedings reveal that no construction work had actually been undertaken by the said assessees or any of the trustees, and hence, the payments shown as contractual receipts were nothing but payments received for voluntary relinquishment of trusteeship in favour of certain identified individuals. The CIT (A) also found that there was a credit of Rs. 8.68 lakhs in the books of accounts of Carmel Educational Trust which had gone into the TDS account of Gracy Babu for assessment year 2011-12 and had not been claimed by her and hence the protective addition in the hands of the assessee for assessment year 2011-12 was reduced from Rs. 4.84 crores to Rs. 8.68 lakhs. He however sustained the substantive addition of Rs. 34 lakhs and Rs. 4.50 crores for the assessment years 2009-10 and 2010-11 respectively in the case of both the assessees. 11. The findings of the Tribunal on the above issue are in paragraphs 12.7 and 12.8 of the impugned order and read as follows: 12.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties 1 to 3 and Parties 8 to 11 in the agreement dated 10-03-2009 can appropriate from the payment of Rs. 9.68 Crores already made to them, subject to deduction of tax at Source under section 194C of the Income Tax Act, towards the cost of the said constructions as per clause above which will be accounted by the first party in the books of accounts of the Trust. 4. The 2nd party i.e. parties 1 to 3 and 8 confirm that they have not further claim from the amount of Rs. 3.75 crores as per clause 4 of the agreement other than the amount already appropriated towards the cost of construction. 5. The 2nd parties 1 to 3 and 8 to 11 will settle the accounts in respect of the balance amount due to the 1st party from the payment of Rs. 9 crores in the event if requires so. 6. The 2nd party i.e. parties 1 to 3 and (8, 9, 10 and 11) in the said agreement has undertaken the construction as per clause 5 of the Deed dated 10.03.2009, incurring a cost of Rs. 9.68 Crores for which the statement will be filed by the said parties 1 to 3 and 8 to 10 to the first party in the agreement dt. 10.03.2009 within one month from today. 12.8 The Believers Church had disclosed this construction in its Balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of advance, also simultaneously enhanced the income of the Trust by a like sum of Rs. 14.55 crores by disallowing its claim for expenditure in the same amount. In relation to the Trust, the finding of the Tribunal, which is impugned in I.T.A. No. 6/2021 filed by the Department in relation to assessment year 2010-11 is found in paragraphs 19 to 19.5, which read as follows: 19. The CIT(A) observed that the assessee had created a fresh asset in his balance sheet for AY 2010-11 which has in the subsequent years been clubbed in the building expenditure undertaken by the assessee Trust during the relevant year and hence, an enhancement notice was given to the assessee in reply to which the assessee submitted that it was the old trustees who have benefited from the various transactions and none of the capitation fees collected by them was passed on to the trust. Further, it was stated that a payment of Rs. 14,54,59,169/- was old trustees as per agreement and repeated request from them stating that they have constructed the building and supporting vouchers and bills shall be submitted to the trust for the construction made. It was submitted that the payment was made and remitted the TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction of infrastructure. It was submitted that no benefit arises to the erstwhile trustees through the payment of Rs. 14,54,59,169/- made to them by the Trust. Such benefit would have been there, if it was diversion of Trust funds by virtue of section 13(2)(g). It was submitted that the payments were made to offset the cost of construction of building done by the erstwhile Trustees and hence, there was no diversion. 19.3 The Ld. AR submitted that the Trust did not claim Rs. 14.55 crores as expenditure or application and hence, the same cannot be added to income of the Trust (copy of Balance Sheet and Income and Expenditure account for year ended 31.03.2009, 31.03.2010 and 31.03.2011 along with enclosures placed before the Bench in Serial Number 11 to 12 of the Paper Book). Even otherwise, it was submitted that the total value of the building with the built up area of 236.999.78 Square feet would not be less than Rs. 33.18 Crores against the balance sheet value as on 31.03.2018 is only Rs. 24,38,23,931.5 and this will offset the difference. It was submitted that the assessee had given construction contract to erstwhile Trustees who carried out the same and since the assessee di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir trusteeship in the Carmel Educational Trust. While this was the stand of the Assessing Authority, the CIT (A) found that the amount of Rs. 8 crores received as donation by St. Thomas Education Trust could not be considered as income in the hands of the above assessees who were trustees in the said St. Thomas Education Trust. This view of the CIT (A) against which the Department had preferred an appeal before the Tribunal, was upheld by the Tribunal. We also see no reason to take a different view since it is not in dispute that the payments in question were actually made to the trust and not to the trustees in their individual names. In the result: 1. I.T.A. Nos. 54/2020, 55/2020, 56/2020, 68/2020 and 6/2021 are dismissed by answering the substantial questions of law raised therein against the revenue and in favour of the assessee. 2. I.T.A. Nos. 46/2020, 48/2020, 49/2020 and 51/2020 are partly allowed by way of remand. The substantial questions of law raised therein, other than on questions (i), (ii), (iii) and (iv) that have been remanded to the Tribunal by this judgment, are answered against the revenue and in favour of the assessee. 3. I.T.A. No. 47/2020 is allowed by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
