No violation of S.13(1)(c) where trust beneficially owns property despite trustees' name registration, absent personal benefit to trustees.

आदशे/ORDER

PER ABY T. VARKEY, JM:

This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 24.09.2024 for the Assessment Year (hereinafter referred to as ‘AY‘) 2016-17.

2. The main grievance of the Revenue is against the action of the Ld.CIT(A) holding that the properties purchased in the name of trustees out of Trust funds did not violate the provisions of Sec.13(1)(c) r.w.s.13(2)(g) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) and was therefore entitled to exemption claimed u/s 11 of the Act.

3. Briefly stated, the facts of the case are that, the assessee is a public charitable trust holding registration u/s 12A/12AB of the Act. For AY 2016-17, the assessee had filed the return of income on 24.02.2017 declaring gross receipts of Rs.33,29,56,567/- and admitting NIL income after claiming exemption u/s 11 of the Act. The case of the assessee was selected for regular scrutiny which was completed u/s 143(3) of the Act on 26.12.2018 accepting the returned income. Later on the Ld. Commissioner of Income Tax (Exemptions) [ in short ‘CIT(E)’] in exercise of revisionary jurisdiction vested u/s 263 of the Act had set aside the assessment order dated 26.12.2018 holding it to be erroneous and prejudicial to the interests of the Revenue. The Ld. CIT(E) inter alia observed that, the assessee trust had acquired properties in the names of their trustees using the trust funds which was in violation of provisions of Section 13(1)(c) of the Act. The Ld. CIT(E) observed that, the subsequent action of trustees bequeathing their legal title in the land parcels to the assessee trust by Will dated 12.12.2018 did not alter the violation committed by them. The Ld. CIT(E) was of the view that, the execution of will was an after-thought in as much as the trustees would enjoy the properties during their lifetime and when it serves no purpose upon their demise, it would vest with the trust. The Ld. CIT(E) further observed that, the Will could later on be altered or modified as well and hence the execution of will did not confer back the title to the assessee trust.

4. Upon receipt of the order passed u/s 263 of the Act dated 31.03.2021, the AO issued notice to the assessee on 07.09.2021 to explain their case. The assessee is noted to have filed their response on 16.09.2021, which has been extensively reproduced by the AO in the assessment order. It was inter alia explained that the intent of the assessee trust and the trustees was always to acquire and hold the land parcels for the use and benefit of the assessee trust for education purposes. The assessee further explained that the registration in the name of the trustees was a bonafide mistake and that the land parcels were beneficially owned by the assessee trust. To demonstrate the same, the assessee furnished the respective books of accounts of the trust and the trustees along with the various registrations obtained from other statutory or local authorities. It was further submitted that, when this mistake came to light, the trustees had executed the will dated 12.12.2018 and also furnished an affidavit dated 21.02.2022 bequeathing the properties onto the trust. It was explained that the legal title was not transferred as they were advised that the registration would entail cost of 8% of stamp duty, which would have unnecessarily burdened the charitable trust with additional costs. The AO however not agreeable to the explanation furnished by the assessee and held that the act of registration of proper