Reena Jose Vs DCIT (ITAT Cochin)
Taxability of Amount Received on Relinquishment of Trusteeship – Trusteeship Surrender Isn’t Capital Gain – ITAT Says Payout Taxable as ‘Other Sources
This case involved members of three related families who were lifetime trustees of Carmel Educational Trust, running engineering and management colleges. Due to internal disputes, the trustees entered into an agreement dated 10.03.2009 with Believers Church, under which:
- All existing trustees resigned en bloc,
- New trustees nominated by Believers Church were inducted,
- Believers Church agreed to pay ₹37.5 crore to settle trust liabilities and complete ongoing constructions,
- Additionally, 55.15 acres of rubber estate owned by trustees were agreed to be sold for ₹12.5 crore.
During search, an unsigned draft agreement (23.02.2009) was found showing different figures (₹43.50 crore and ₹6.5 crore). Based on that, AO concluded that trustees received excess consideration masked under different heads. He taxed this amount as unexplained receipts in the hands of trustees.
In the first round, ITAT held that this amount was capital receipt for relinquishment of trusteeship, a capital asset, and since trusteeship had no cost of acquisition, following B.C. Srinivasa Shetty (SC), no capital gains could be levied. Therefore, ITAT held the amount not taxable
The High Court reversed the ITAT, holding:
