The Commissioner of Income-tax and the Deputy Commissioner of Income-tax Vs. Sir M. Visveswaraya Educational Trust - Court Judgment

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- mines and minerals (regulation and development) act (67 of 1957) section 11: [p.d. dinakaran, cj & v.g. sabhahit, j] grant of mining lease cancellation sought on the ground that mining may cause trouble to people in village concerned wherein pooja and festival is being conducted every year on ground level maintainability neither survey number of areas nor any material produced by petitioners to show that alleged pooja and festival is being conducted in or around the impugned quarry petitioners even failed to establish existence of any temple around quarry which has got religious sanctity - cancellation of grant of mining lease cannot be granted. - 14. whether the tribunal was correct in recording a finding that the misuse of funds was very insignificant and there was exaggeration by the assessing officer in holding that the payments had been made to family members as there were only minor irregularities in accounts and that the remuneration and electricity bill being paid was justified by ignoring the cogent evidence examined by the assessing officer which clearly disclose that the chairman, his wife and sons were running the institution as a family concern not for the sole purpose of education but also for profit. another ground of attack to the impugned order would be that the tribunal has committed an error in holding that misutilisation of funds is very insignificant fraction of the total receipts of the trust and that the assessing officer has exaggerated the payments made to the family members of the chairman to somehow deny exemption on one pretext or the other and further has failed to record a finding in respect of advance amount of rs. further, it is contended that the tribunal has failed to appreciate the fact that the managing trustee and his wife and sons were running the institution as their personal business in order to make profit to themselves and therefore the assessee was not entitled for the exemption claimed under section 10(22) of the act. therefore, he submits that the payments made in favour of the son of the chairman and trust and as the hospital is being run by the trust, the tribunal is right in recording a finding that misutilisation of the funds is an erroneous finding and therefore substantial questions of law framed by the ravenue in this appeal do not arise and therefore praised for dismissal of this appeal, further placing strong reliance upon the deed of declaration of the trust, the affidavit and the sale deed agreements in respect of purchase of the property on behalf of the trust, the impugned order has been passed. therefore the same is permissible under section 6 of the indian trust act and hence he contends that the tribunal is perfectly justified in setting aside the order of the assessing officer. further, by placing strong reliance upon the decision of the supreme court, in the case of trustees of charity fund v. the further details regarding the same is also clearly mentioned and excess of income over expenditure, receipts taken directly to the interest is also mentioned by showing the corpus donation directly to the balance sheet without excluding the same from the income & expenditure account. xi (4) is clearly mentioned. further, the undisputed fact of appointment of family members to the important posts of the trust and payment of remuneration to them is also clearly extracted. further, the documentary evidence would clearly go to show that the receipts which are in the name of the trust and donation collected amounts to profit making motive and it cannot be the object or the purpose of running a charitable educational institution for which the statutory benefit under section 10(22) of the act is claimed.v. gopala gowda, j.1. this appeal is by the appellant questioning the correctness of the order dated 31-7-2003 passed by the income tax appellate tribunal, bangalore, in ita no. 769/bang/2002 for the assessment year 1997-98, by framing the following substantial questions of law:12. whether the tribunal was correct in holding that the assessee was entitled to exemption under section 10(22) of the act?13. whether the tribunal was correct in holding that exemption under section 10(22) of the act cannot he denied on the basis of the provisions of section 13(2b) of the act?14. whether the tribunal was correct in recording a finding that the misuse of funds was very insignificant and there was exaggeration by the assessing officer in holding that the payments had been made to family members as there were only minor irregularities in accounts and that the remuneration and electricity bill being paid was justified by ignoring the cogent evidence examined by the assessing officer which clearly disclose that the chairman, his wife and sons were running the institution as a family concern not for the sole purpose of education but also for profit.2. the learned counsel appearing for the appellant mr. seshachala, contends that the tribunal committed an error in law in holding that the remuneration paid to the wife and children or the managing trustee of the trust and the electricity bills towards the residence cannot be termed as misutilisation of funds. another ground of attack to the impugned order would be that the tribunal has committed an error in holding that misutilisation of funds is very insignificant fraction of the total receipts of the trust and that the assessing officer has exaggerated the payments made to the family members of the chairman to somehow deny exemption on one pretext or the other and further has failed to record a finding in respect of advance amount of rs. 5,00,000/- paid by the chairman of the trust out of the funds of the trust to purchase the property in his name. therefore, the learned counsel has requested to answer question nos. 14 instead of question nos. 12 & 13 in favour of the revenue. it is further contended by the tribunal has recorded a erroneous finding stating that exemption under section 10(22) of the income tax act cannot be denied on the basis of provision of section 13(2b) of the act. further, it is contended that the tribunal has failed to appreciate the fact that the managing trustee and his wife and sons were running the institution as their personal business in order to make profit to themselves and therefore the assessee was not entitled for the exemption claimed under section 10(22) of the act. therefore, he requested to answer the aforesaid questions in favour of the revenue.3. sri m. javali, learned counsel appearing for the respondent sought to justify the findings and the reasons recorded by the tribunal in the impugned judgment contending that the electricity bills is in respect of residence of the chairman in which the house and office of the trust is being housed in the same apartment. therefore, he submits that the payments made in favour of the son of the chairman and trust and as the hospital is being run by the trust, the tribunal is right in recording a finding that misutilisation of the funds is an erroneous finding and therefore substantial questions of law framed by the ravenue in this appeal do not arise and therefore praised for dismissal of this appeal, further placing strong reliance upon the deed of declaration of the trust, the affidavit and the sale deed agreements in respect of purchase of the property on behalf of the trust, the impugned order has been passed. though the said property has been purchased on behalf of the trust and an agreement of sale is entered into by the chairman and trust on behalf of the trust. therefore the same is permissible under section 6 of the indian trust act and hence he contends that the tribunal is perfectly justified in setting aside the order of the assessing officer. further, by placing strong reliance upon the decision of the supreme court, in the case of trustees of charity fund v. c.i.t. (1959) 36 itr 543 with regard to the dominant intention if public purpose was incidental benefit to relatives is not material, ho contended that the said legal principle is applicable to the facts situation recorded by the tribunal. therefore, the substantial questions of law do not arise for consideration. in support of the said contention he also placed reliance upon the decision in the case of c.i.t. v. smt. kasturbhai walchand trust reported in : (1967) 63 i.t.r. 656 wherein the supreme court has held that whenever a valid trust is created, the properties concerned vest in the trustees and income accruing from those properties is the income of the trust and not the properties of the beneficiaries.4. with regard to the said above contentions we have carefully examined the same and answer the aforesaid substantial questions of law in favour of appellant for the following reasons:1) we have carefully examined the assessment order passed by the assessing officer. he has passed the assessment order on the basis of the survey conducted by him on 9-3-1998. the assessing officer at that time has noticed that certain important documents were impounded and statements on oath of sri p. sadasivan, chairman-cum-managing trustee was recorded. thereafter, as per the procedure contemplated under section 143(1) & (2) of the act notices were issued to the assessees calling for various details from them. the survey was conducted on the basis of the authorisation obtained from the commissioner of income-tax. the assessing officer has verified the declared income of the trust filed on 31-10-1997 in which the total receipts are stated to be rs. 4,61,735/- and the other details regarding the statements enclosed, opening balance(cash and bank), total receipts, excess of income over expenditure and closing cash and bank balance are extracted. the further details regarding the same is also clearly mentioned and excess of income over expenditure, receipts taken directly to the interest is also mentioned by showing the corpus donation directly to the balance sheet without excluding the same from the income & expenditure account. thereafter misappropriations of the trust fund and unexplained withdrawals in detail at item no. xi (4) is clearly mentioned. the said payments have been made to the chairman and managing trustee and the legal advisor of the trust and the family members to purchase dental equipments and towards electricity charges of chairman's house. further, the undisputed fact of appointment of family members to the important posts of the trust and payment of remuneration to them is also clearly extracted. the payment made is out of unexplained income of the assessee. the agreement of sale and the sale deed and payments made are in the name of sri sadashivan, chairman-cum-managing trustee of the trust and not in the name of the trust. therefore, the said findings of the assessing officer are in respect of misappropriation and misutilisation of the funds of the trust. the unexplained withdrawals are mentioned in the order of the assessing officer. on the basis of the disputed facts and the material evidence on record, the documents were impounded from the office of the assessee. therefore, the said findings are based on proper appreciation of material evidence on record. the said findings are affirmed by the appellate tribunal. the tribunal without applying its mind to the facts and the documentary evidence on record, which are considered by the assessing authority, has recorded a finding of fact stating that the receipts in the name of the trust amounts to profit making. it is not the object to avail the benefit under section 10(22) of the income-tax act. further, the amount of the trust is being misutilised and misappropriated in the name of the managing trustee and chairman and also the family members of him and the expenditure is incurred towards the house of the managing director and chairman-cum-managing trustee and huge amounts have been spent in the name of the family members of the managing trustee. the purchase of dental equipments for the college are not supported by the valid receipts and documents. further, the properties are purchased in the name of sadashivan the managing trustee. the said finding of the assessing officer based on material evidence is set aside by the tribunal without adverting to each one of the items independently by applying its mind to the undisputed facts and the material evidence available on the file of the assessing officer and the documents, which are impounded from the office of the trustee and without assigning valid and proper reasons. further, the documentary evidence would clearly go to show that the receipts which are in the name of the trust and donation collected amounts to profit making motive and it cannot be the object or the purpose of running a charitable educational institution for which the statutory benefit under section 10(22) of the act is claimed. therefore, the substantial questions of law 13 & 14 would certainly arise in this appeal and we answer the same in favour of the revenue.5. further, the decision of the supreme court in the case of aditanar educational society v. additional cit reported in : (1997) 224 itr 310 would not be of any assistance to the case of the assessee, in view of the finding of fact by the assessing officer confirmed by the 1st appellate authority on the basis of the documentary evidence on record, which were found and seized at the time of search conducted by the assessing officer and the material on record which is not disputed by the assessee. therefore, the said decision and other decision of rajasthan high court and andhra pradesh high court in relation to the property in the name of the managing trustee and chairman sri sadashivan is the property which is registered under the societies registration act, cannot be accepted and the said decisions have no application to the facts & situation. various details referred to in the assessment order by the assessing officer is supported by voluminous documentary evidence and admitted facts and the amount in the bank account in the name of the trust is being misutilised in the name of the family members of the managing trustee. the finding of fact has been recorded by the tribunal without adverting to the finding of fact recorded by the original authority with reference to the material evidence. therefore, the finding and reasons recorded on the contentions prints by the journel are erroneous. hence, substantial questions of law nos. 12, 13 & 14 would arise in this appeal. we answer the same in favour of the revenue by setting aside the impugned judgment dated 31-7-2003 passed by the income tax appellate tribunal, bangalore, in ita no. 769/bang/2002.6. accordingly, the appeal is allowed.