Misappropriation and misutilisation of funds can disqualify an entity from claiming exemption under Section 10(22) of the Income Tax Act.

V. Gopala Gowda, J.— 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 Revenue 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 set