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
Assessment Year : 2010-11
M/s Vels Institute of Science Technology & Advanced Studies
Vs.
The Deputy Director of Income Tax (Exemptions)
Appellant by : Shri S. Bharath, CIT .
Respondent by : Shri R. Sivaraman, Advocate
Date of Hearing : 19.08.2015
Date of Pronouncement : 28.10.2015
ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER:
The appeal by the Revenue and the cross-objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 31.05.2013 and pertain to assessment year 2010-11.
2. Shri S. Bharath, the Ld. Departmental Representative, submitted that the assessee-Trust is registered under Section 12AA of the Income-tax Act, 1961 (in short ‘the Act’) and claimed exemption under Section 11 of the Act for the year under consideration. However, the Assessing Officer found that the assessee-Trust gives loan to the interested persons in violation of Section 13(1)(c) r.w.s. 13(3) of the Act. According to the Ld. D.R., during the year under consideration a sum of Rs. 15,76,00,000/- was outstanding as loan and advances. The Assessing Officer on verification of balance sheet, found that the said amount was paid to Dr. Ishari K. Ganesh, the founder and Managing Trustee of the assessee-Trust. Therefore, the Assessing Officer found that the transaction of loan was in violation of Section 13(1)(c) r.w.s. 13(3) of the Act. Referring to assessment order, the Ld. D.R. submitted that the Assessing Officer brought out the entire transaction at pages 2 and 3 of his order. The assessee claimed before the Assessing Officer that the transaction being a loan transaction, the money was received in pursuance of agreement for sale. According to the Ld. D.R., the assessee claimed before the Assessing Officer that it intended to establish a medical college. Therefore, the assessee entered into an agreement for purchase of land with the Managing Trustee. However, after considering the material available on record, the Assessing Officer found that out of the total consideration of Rs. 20 Crores, the Managing Trustee received an advance of Rs. 16,91,00,000/-. Therefore, the Assessing Officer found that even if the transaction of purchase of property was considered to be genuine, the payment of advance to the trustee, which is in excess of the market value of the land, would make the assessee ineligible for making claim under Section 11 of the Act. Therefore, according to the Ld. D.R., there was a clear violation of provisions of Section 13(1)(c) of the Act, since the money was advanced to the Managing Trustee without any adequate security.
3. Shri Bharath, the Ld. D.R., further submitted that the assessee has received donation from Sri Balaji Charitable and Educational Trust. According to the Ld. D.R., by a gift deed dated 03.03.2010, Sri Balaji Charitable and Educational Trust has donated three of its institutions to the assessee-Trust, along with land, building and other infrastructures. The assessee recognized these educational institutions as its own institutions on and from 01.10.2009. Since the Assessing Officer found that the loan was advanced by the assessee-Trust to its Managing Trustee against the provisions of Section 13(1)(c) of the Act, the assessee is not eligible for exemption under Section 11 of the Act. Therefore, the corpus of the institution received by the assessee as donation from Sri Balaji Charitable and Educational Trust to the extent of Rs. 37,83,27,838/- was taken as income of the assessee. According to the Ld. D.R., since there was violation of Section 13(1)(c) of the Act, the assessee is not eligible for exemption under Section 11 of the Act, therefore, the Assessing Officer rejected the claim of the assessee. However, on appeal by the assessee, the CIT(Appeals) allowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee for purchasing the landed property since the Trust had intended to establish a medical college. Therefore, the CIT(Appeals) allowed the claim of the assessee. According to the Ld. D.R., as rightly observed by the Assessing Officer, the money was advanced to the Managing Trustee in violation of provisions of Section 13(1)(c) of the Act. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee.
4. On the contrary, Shri R. Sivaraman, the Ld.counsel for the assessee, submitted that the assessee-Trust has established and administering educational institutions. The educational institution established by the assessee was recognized as deemed university by University Grants Commission. For the purpose of obtaining the deemed university status, the University Grants Commission prescribes certain guidelines, including infrastructure facilities. During the financial year 2009-10, the assessee-Trust planned to start a medical college as part of its charitable activity. As per the guidelines prescribed by Medical Council of India, the minimum land required is 25 acres. Therefore, the assessee-Trust proposed to purchase the land belonging to the Managing Trustee Dr. Ishari K. Ganesh to the extent of 28.93 acres of land. In that process, the assessee-Trust has paid Rs. 15,76,00,000/- on 31.03.2010. An agreement was also entered into between the assessee-Trust and the Managing Trustee for purchase of land. The Ld.counsel further submitted that the assessee-Trust has also taken loan from the Managing Trustee and the related persons. In fact, the CIT(Appeals) extracted the interest-free loan received by the assessee-Trust from the related persons and Managing Trustee.
5. According to the Ld.counsel for the assessee, Section 13 of Act is not prohibiting any transaction by the Trust with interested persons. What is prohibited by Section 13 of the Act is advancing of money without adequate security or adequate interest. In the case before us, even though the money was advanced for purchase of property as per the agreement for sale, after cancellation of agreement, the Managing Trustee has paid interest on the amount advanced. In fact, the Managing Trustee has paid Rs. 4,06,92,078/- as interest including compensation of Rs. 25,00,000/-. In fact, the CIT(Appeals) extracted the value of the interest paid by the Managing Trustee at page 49 of his order. Therefore, according to the Ld. counsel, it cannot be said that the money advanced by the assessee is without any adequate security or without any interest. In fact, the assessee had paid more interest than the market rate. Therefore, there is no question of violation of Section 13(1)(c) of the Act.
6. Referring to the receipt of three institutions from Sri Balaji Charitable and Educational Trust, the Ld.counsel for the assessee submitted that, in fact, the assessee-Trust received as donation three institutions from Sri Balaji Charitable and Educational Trust. No funds of the assessee-Trust were transferred to Sri Balaji Charitable and Educational Trust. The Institution has received as donation from the institution which has similar object. The disallowance was made merely because the assessee-Trust advanced to interested persons. Since the advance was made only for the purpose of purchasing the land and the Managing Trustee has also repaid the amount with interest, according to the Ld. counsel, there is no violation of Section 13(1)(c) of the Act. Therefore, the receipt of donation of three institutions from Sri Balaji Charitable and Educational Trust cannot be a reason for rejecting the claim of the assessee under Section 11 of the Act. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee under Section 11 of the Act.
7. We have considered the rival submissions on either side and perused the relevant material on record. It is not in dispute that the assessee-Trust is registered under Section 12AA of the Act. It is also not in dispute that there was an agreement for sale of the land belonging to the Managing Trustee to the assessee-Trust. The only objection of the Revenue appears to be that the sale of the land is not on par with the market value. From the order of the Assessing Officer it appears that the market value of the land is very less than what was agree to be sold to the assessee-Trust. The fact remains that there was an agreement for sale of the property and the assessee-Trust advanced the funds. There is no fixed price for sale of land. The price of a land is flexible, depending upon various factors. The urgency of the vendor to sell the property, the necessity of the purchaser to purchase the property, the location of the land, the area of the land, infrastructures available nearer to the land and future prosperity for development of the land, etc. need to be considered while determining the market value of a land. Apart from that, it is well settled principles of law that market value is nothing but a price agreed between the willing seller and willing purchaser. Therefore, we cannot say that a particular land has to be sold by a particular person for a particular rate. If two willing persons agreed to sell and purchase the property for a particular price, then the Assessing Officer may not have any role to dismiss the agreed price unless there are some evidences found that the agreed price disclosed is not actually the agreed price. In the case before us, it is nobody’s case that the price agreed between the Managing Trustee and the Trust is not actually the agreed price. Therefore, the observation of the Assessing Officer in the assessment order that the value of the land is much less than what was agreed between the parties cannot stand in the eye of law. When the assessee-Trust intended to establish a medical college for which it requires minimum 25 acres of land and the Managing Trustee has such vast area of land, nothing wrong in purchasing the land from the Managing Trustee by paying the market value. Subsequently, the assessee-Trust could not establish medical college. Therefore, the agreement was cancelled. In fact, the Managing Trustee repaid the part amount along with interest. It is not the case of the Revenue that the interest paid by the Managing Trustee is not in market rate.
8. We have carefully gone through the provisions of Section 13 of the Act. 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.
9. Now coming to the receipt of donation from Sri Balaji Charitable and Educational Trust, what was received by the assessee is capital asset by way of three institutions and its infrastructures. It is nobody’s case that the assessee’s funds were diverted to any other Trust. When the assessee received three institutions for carrying out its charitable activity, it cannot be said that there was a violation of any other provisions of Income-tax Act. In fact, the Assessing Officer himself disallowed the claim of the assessee on the ground that the money was advanced to the Managing Trustee. Since this Tribunal found that there was no violation of Section 13(1)(c) of the Act in respect of the agreement entered between the assessee-Trust and the Managing Trustee for purchase of property and it is not in dispute that the Managing Trustee returned entire amount with interest of Rs. 4,06,92,078/-, the assessee is entitled for exemption under Section 11 of the Act. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, confirmed.
10. The assessee has filed the cross-objection claiming depreciation to the extent of Rs. 5,25,30,554/-.
11. Admittedly, the assessee-Trust is registered as charitable institution and it is claiming exemption under Section 11 of the Act. The claim of the assessee under Section 11 of the Act is allowed by the CIT(Appeals) which was confirmed by this Tribunal in the earlier part of this order. It is not the case of the assessee that it is not doing any business. Therefore, this Tribunal is of the considered opinion that the assessee is not entitled for any depreciation under Section 32 of the Act. In fact, this Bench of the Tribunal in the case of Tamil Nadu Cricket Association v. DDIT(Exemptions) had an occasion to consider an identical issue. This Tribunal, vide its order dated 14th August, 2015 in I.T.A. Nos.1535 to 1537/Mds/2014, recorded its finding which is as follows:
