No Violation of Section 13 on refund of Advance against property with Interest from Interested Parties

M/s Vels Institute of Science Technology & Advanced Studies Vs. DDIT (E)- ITAT Chennai-  Section 13(1)(a) says that if any part of the property or income of the Trust is given to the interested person without either adequate security or adequate interest, for the benefit of the person interested, then there shall be a diversion of funds for the interested person. Section 13(1)(c) says that if the amount paid is excess of what was reasonably paid for the service rendered has to be considered as used or applied for the benefit of person interested. In the case before us, the Managing Trustee has not rendered any service. In fact, there was an agreement for purchase of property. Therefore, the question arises for consideration is whether the money advanced by the assessee to the extent of Rs. 15,76,00,000/- is without adequate security and after cancelling the agreement, whether the assessee has received the adequate interest from the Managing Trustee. We have carefully gone through the order of the CIT(Appeals). From the order of the CIT(Appeals) it appears that the assessee has received Rs. 4,06,92,078/- being the interest from the Managing Trustee, in addition to the principal amount after cancellation of agreement. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that after cancellation of agreement, the assessee-Trust was returned and compensated by way of interest. Therefore, the transaction between the assessee-Trust and the Managing Trustee cannot be construed as without any adequate security or without any adequate interest. Therefore, this Tribunal is of the considered opinion that the money was in fact advanced in pursuance of the agreement for sale. After cancellation of agreement, the money was returned in its entirety. Since there was delay in repayment of money received as advance for sale of the land, the Managing Trustee has also paid interest to the extent of Rs. 4,06,92,078/-. Therefore, at any stretch of imagination, it cannot be said that the money was diverted for interest of the Managing Trustee. Therefore, this Tribunal is of the considered opinion that there is no violation of Section 13 of the Act.

IN THE INCOME TAX APPELLATE TRIBUNAL, “C” BENCH, CHENNAI
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No.1759/Mds/2013 & C.O. No.15/Mds/2014

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