G.E. Veerabhadrappa, AM - (1.) THESE three appeals by the assessee arise outof order of the Commissioner (Appeals)-II, Bangalore dated 19-4-200 1, for the assessment years 1991-92 to 1993-94. For the sake of convenience these are consolidated and disposed of by a common order.
(2.) The assessee is a public charitable trust registered under section 12A of the Income Tax Act, 1961. It filed the returns for the years under consideration showing certain losses. The returns were processed under section 143(1)(a) of the Act and subsequently, the assessments were reopened by issue of notice under section 148 on 10-2-1996. While completing the assessment, the assessing officer withdrew the benefit under sections 11 and 12 of the Act, on the ground that certain advances were made by the trustee viz., Shri S. Jayaprakash Mady (hereinafter referred to as 'S.J. Mady') without adequate security in violation of the provisions of section 13(2)(a) and there was diversion of income/property of the Trust in favour of the said S.J. Mady within the meaning of section 13(2)(g). With these observations, the assessing officer proceeded to determine the taxable income and subjected the said income to tax at maximum marginal rate. The background which prompted the assessing officer to come to these views may be elaborated as under. The Trust came into existence by virtue of a trust deed dated 27-3-1989 with three trustees viz., Shri S. Sadananda Mady, Shri S.T. Raghavendra Mady and Sri H.A.K. Rao. The trust applied for registration under section 12A of the Act and also for recognition under section 80G of the Act. The same was granted. During the financial year 1989-90, the trust made an advance of Rs. 1,95,000 to one Shri Papana, for purchase of the agricultural land owned by him, for the purpose of setting up an Agricultural College- cum- Research Centre. On 7-4-1990, S.J. Mady, son of the author of the Trust co-opted as a new trustee. One of the trustees viz., Shri. H.A.K. Rao resigned as a trustee during the financial year ending 31-3-1992. Since then the trust continued to have three trustees on the Board. In May, 1990, 19 acres and 13 guntas of land was registered in the name of S.J. Mady in his individual name and the total expenditure incurred towards the purchase of agricultural land was of Rs. 4,72,665 (including the amount of Rs. 1,95,000 advanced during the financial year 1989-90). Subsequent to this, the land in question was given on lease by S.J. Mady to a company in which he himself was a director. On these facts, the assessing officer proposed to withdrawn the benefit of sections 11 and 12 of the Act. It was contended that in view of the Karnataka Land Reforms Act, 1961, the land could not be registered in the name of the trust hence, the same was registered in the name of S.J. Mady, as per the legal advice. The assessee was also advised to obtain an affidavit from the trustee, SJ. Mady affirming that the agricultural lands are held by him on behalf of the trust. It was contended that the lease rentals in respect of the said land have also been credited in the accounts of the trust. In March, 1983 on a payment of Rs. 5 lakhs received from S.J. Mady, the land was handed over to S.J. Mady. It was pleaded before the assessing officer that the possession of the purchase documents of the land were adequate security and the trust also received reasonable returns by way of lease rent and in view of this there was on violation of the provisions of section 13(2)(a) of the Act. The assessing officer did not agree with the submissions of the assessee and went on to deny the benefit of sections 11 and 12 of the Act. He subjected various incomes and receipts of the trust to tax. These findings of the assessing officer were endorsed by the Commissioner (Appeals). The assessee is aggrieved and is in appeal before us.
(3.) THE learned counsel for the assessee reiterated the submissions made before lower authorities and pointed out that the denial of benefits under sections I I and 12 to the assessee is unjustified and unwarranted. THE learned counsel pleaded that the land was not registered in the name of the trust for the simple reason that the provisions of Karnataka Land Reforms Act, 1961 came in its way and the land was purchased by the trust from out of the trust funds only, but the registration had been done in the name of S.J. Mady. SJ. Mady was one of the trustees and is entitled to hold the property for and on behalf of the trust. According to the learned counsel for the assessee, the trust is itself an obligation which is annexed to the ownership of the property. THE trust is not a corporate entity or a person to hold a property in its name. THErefore, the department has unnecessarily denied the benefit of exemption without properly appreciating the provisions of the Indian Trust Act where the trust can hold the property only in the name of the trustees. THE entire transaction is accounted in the books of account of the trust and the rental income received by the trust is also duly accounted in the books of account of the trust. THE assessee intended to purchase the property to set up an agricultural college- cum-research centre. A statement recorded from all the trustees clearly evidenced this fact. It is not the case of the department that the property in question was appropriated by S.J. Mady for his personal benefit. All the incomes are properly accounted in the books of the trust. It is also not the case of the department that the terms of the lease does not reflect the market conditions. THE income accounted from out of the funds have been utilized for charitable purposes. THE learned counsel further pleaded that the department is also wrong in levying the tax at maximum marginal rate when the rate of tax applicable should have been as applicable to individual assessees. He further pleased that the lease rent was adequate and even the sale price realized by the trust is also based on market conditions and the trustees have accounted the sale consideration in the books of the trust. THE learned counsel also pointed out that there are absolutely no violations under section 13(2)(a) or 13(2)(g) of the Act and the department has wrongly denied the exemption available to the public charitable trust. Reliance was placed on the following authorities Niti Trust v. CIT ( 1996) 221 ITR 435 (Guj.) CIT v. Venu Suresh Sanjay Trust (1996) 221 ITR 649 (Mad.) CIT v. Sivasakthi Trust (2003) 128 Taxman 342 (Mad.) Income Tax Officer v. Shri Hanuman Mandir Trust (2003) 84 ITD 83 (Pune) Dy. CIT(Ex) v. Sheth Mafatlal Gagalbhai Foundation Trust(2001) 249 ITR 533 (Bom.) DIT (Ex) v. Shardaben Bhagubhai Mafatlal Public Charitable Trust (2001) 247 ITR 1 (Bom.) L.R. Patel Family Trust v, Income Tax Officer (2003) 262 ITR 520 (Bom.);