Tax Exemption Cannot Be Denied For Mere Registration Of Land In Trustees' Names: ITAT Chennai

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) on 24 February, held that exemption under Section 11 of the Income Tax Act cannot be denied to Everwin Educational & Charitable Trust, merely because land acquired for construction of a school was registered in the names of its trustees.

A Bench comprising Judicial Member Aby T. Varkey and Accountant Member Amitabh Shukla dismissed the Revenue's appeal for Assessment Year 2016-17 and upheld the order of the Commissioner (Appeals), who had deleted the addition. The Tribunal observed:

“the conduct of the assessee trust and the trustees, more particularly having regard to the fact that the funds to acquire the property was provided by the trustees in the first place, lends credence to the assessee's plea that the acquisition of the land in question was not meant to benefit the trustees in their individual capacity.”

Section 13(1)(c) provides that exemption under Sections 11 and 12 shall not apply if the income or property of the trust is used or applied, directly or indirectly, for the benefit of specified persons, including trustees. Further, Section 13(2)(g) treats the diversion of trust property in favour of such persons as a deemed benefit.

The Assessing Officer had denied exemption under Section 11 on the ground that the land, purchased out of trust funds but registered in the individual names of two trustees, constituted a benefit to them.

The Tribunal noted that the land was always reflected as an asset in the trust's books and not in the personal balance sheets of the trustees. The trust constructed a school on the land and obtained statutory recognition and CBSE affiliation in its own name. During the appellate proceedings, the trustees executed a registered rectification deed dated 11 April 2023, substituting the trust's name in the original purchase deed, and the revenue records were mutated in favour of the trust.

The Tribunal held that for Section 13(1)(c) to apply, there must be actual use or application of income or property for the personal benefit of the specified persons. On the facts, it found “no iota of evidence” that the trustees had derived any personal benefit from the property. It further observed:

“It was incorrect for the AO to assume that registration in trustees' names automatically results in benefit to them, when the facts and circumstances placed on record show the contrary, that the impugned property beneficially belonged to the assessee trust and was all along enjoyed and used by the assessee trust, and that the individual trustees did not derive any benefit therefrom.”

Accordingly, the Tribunal held that mere registration in the trustees' names, in the absence of any diversion or enjoyment by them, does not attract Section 13(1)(c) and dismissed the Revenue's appeal.

For the Appellant (Revenue): Mr. Shivanand K. Kalakeri, CIT