Case Law Details
Brief of the case:
Madras High Court in M/s Natya sankalpaa Vs DIT Exemptions held that if the trustee would compensate the trust with the amount which trust had applied on the property of the trustee then it could not be said that the income of trust had applied to the benefit of trustee and exemption of sec 13(1) could not be denied.
Facts of the case:
Assessee formed a trust with his wife to promote bharatanatyam and other forms of Indian classical dance. Assessee was the owner of the land which he allowed the trust to construct the building with the income of the trust on the same land and use it for the trust. With this revenue was of the view that there was indirectly application of the income of the trust for the benefit of trustee i.e persons mentioned u/s 13(1). But assessee was of the view that he would return back the money of the value of building when the trust decides not to continue anymore. So, this was not an application of income for the benefit of the trustee.
Contention of the assessee:
Assessee was of the view that it was written in the agreement that when the trust would decide not to continue the trust then the trustee would pay the amount of the value of building to the trustee. So ultimately the cost which the trust would incur would come back to the trust. So the same should not be treated that the fund of trust was used for the benefit of assessee and the exemption of sec 13(1) should not be denied.
Contention of the revenue:
Revenue was of the view that as the land on which building was constructed was owned by the trustee. So, indirectly this was for the benefit of the trustee. Moreover as per sec 13(1) exemption u/s 11 would be denied if the income of the trust would be applied directly/indirectly for the benefit of trustee irrespective of the fact that there was agreement between the trust and trustee that the amount equal to the value of building would be returned back when trust decides not to continue its operations.
Held by High Court:
High Court held that there was nothing to show that the income of the trust was applied for the benefit of the assessee as written in the agreement that the trustee shall compensate the trust for the value of building when the trust would decide to discontinue its operations. So, with this there could not be any application of trust income which would ultimately benefit the trustee. The contention of the revenue that the trust income was applied for benefiting the assessee was wrong .So the assessee was allowed to take the exemption of sec 13(1).
