The order of the Bench was delivered by
1. Chandra Poojari (Accountant Member).-This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals) dated September 2, 2013.
2. The facts of the case are that the Assessing Officer observed that a part of the income of the trust had been used for the benefit of M/s. Mahalakshmi Garments Exports of which the trustee, Shri S. Kunjithapatham was the proprietor. This observation was made by the Assessing Officer on the basis of peak debit balance of Rs. 20,98,480 in the books of account of the trust as on October 8, 2009. According to the Assessing Officer, the assessee had committed an act in violation of section 13(1)(c) of the Income-tax Act, 1961. On that ground, the Assessing Officer denied exemption under section 11 of the Act for the impugned assessment year and disallowed all the capital expenditure. Against this, the assessee went in appeal before the Commissioner of Income-tax (Appeals).
3. On appeal, the Commissioner of Income-tax (Appeals) observed that the Assessing Officer while observing the peak debit balance as on October 8, 2009 against the trustee, Shri S. Kunjithapatham's proprietorship concern, had failed to appreciate the steady and long standing credit balance of Rs. 20,30,000 in the name of Shri S. Kunjithapatham in the books of account of the trust. Apart from the above credit, wife of Shri S. Kunjithapatham was also having a credit balance of Rs. 2,22,74,985 in the trust. Therefore, the funds of the trust has not flown to the trustees for their benefits. According to the Commissioner of Income-tax (Appeals), there is no violation of section 13(1)(c) so as to deny exemption under section 11 of the Act. Therefore, he granted exemption under section 11 of the Act. Against this, the Revenue is in appeal before us.
4. The learned Departmental representative submitted that the Assessing Officer had considered the consolidated accounts of the three entities in the books of the trust as on April 1, 2009 (i) Shri S. Kunjithapatham, (ii) Mahalakshmi Garment Exports (Prop. Shri S. Kunjithapatham), and (iii) Mahalakshmi Garment Exports in the books of Mahalakshmi Women's College of Arts and Science and arrived at the opening credit balance of Rs. 18,26,520. However, the same consolidated account shows a debit balance for a long period of 9 months from May, 2009 to February, 2010, meaning thereby that the managing trustee had utilised the trusts' fund for personal benefit and thereby violating section 13(1)(c) of the Act. He further submitted that there is violation of section 13(1)(c) and 13(1)(d) of the Act, as there is a cash credit balance of Rs. 20.30 lakhs in the name of Shri S. Kunjithapatham, trustee in the books of account of the trust without appreciating that such credit balance had already been subsumed in the consolidated account. He also submitted that the Commissioner of Income-tax (Appeals) has erred in giving credit once again of the said sum of Rs. 20.30 lakhs without appreciating the fact that the peak debit balance was worked out based on the above opening balance and the same credit balance of Rs. 20.30 lakhs had already been considered by the Assessing Officer. Further he submitted that the Commissioner of Income-tax (Appeals) has erred in holding that Smt. Mahalakshmi, wife of Shri S. Kunjithapatham has also funded Rs. 2 crores to the trust. Hence, if the funds are consolidated, there is no violation under section 13(1)(c) of the Act. According to the learned Departmental representative, the Commissioner of Income-tax (Appeals) ought to have appreciated the fact that the transactions between the trust and the trustees are to be viewed independently with each trustee for the purpose of determining violation under section 13(1)(c) of the Act and though Smt. Mahalakshmi may be wife of the trustee, Shri S. Kunjithapatham, she has to be treated as another trustee and a distinct person in the eyes of law. Further, he submitted that the Commissioner of Income-tax (Appeals) failed to appreciate that there is no rule as to family members of the trust are to be considered together while invoking the provisions of section 13(1)(c) of the Act. Therefore, netting of the credit balance of Smt. Mahalakshmi, with the debit balance of her husband, Shri S. Kunjithapatham has been erroneously resorted to by the Commissioner of Income-tax (Appeals). According to the learned Departmental representative, as long as funds of the trust are lying with Shri S. Kunjithapatham, trustee, the same also violates section 13(1)(d) of the Act.
5. On the other hand, the learned authorised representative submitted that if the balance outstanding in the name of the trustee's wife is considered, there is no flow of trust fund to the person Shri S. Kunjithapatham. According to the learned authorised representative, Shri S. Kunjithapatham and Smt. Mahalakshmi Kunjithapatham jointly established the charitable trust. Both of them have given interest-free loans to the assessee for starting arts college in the name of Mahalakshmi Women's College of Arts and Science and these funds were transferred from Mahalakshmi Garments Exports. In view of the above, the learned authorised representative submitted that there is no violation of section13(1)(c) of the Act.
6. We have heard both sides and perused the material on record. In this case, the funds have been transferred from the assessee-trust to the accounts of Mahalakshmi Garments Exports, wherein Shri S. Kunjithapatham is the proprietor. The peak debit balance in the books of account of the trust as on October 8, 2009 was at Rs. 20,98,480. According to the learned authorised representative, the outstanding balance due to one of the trustees, Smt. Mahalakshmi Kunjithapatham was Rs. 2,22,74,985. If these two accounts are jointly considered, there is no question of any benefit to the trustees. In our opinion, these arguments of the learned authorised representative are farfetched. Each trustee has to be considered independently and distinctly. In the present case, there is a transfer of funds to one of the trustees' benefit, Shri S. Kunjithapatham, who is the proprietor of Mahalakshmi Garments Exports. In our opinion, the expression "person" used in section 13(1)(c)(ii) includes a person, who is the trustee. Thus, the amounts are transferred to Shri S. Kunjithapatham for his benefit and the outstanding balance in the name of Smt. Mahalakshmi Kunjithapatham cannot be clubbed together with funds outstanding from another trustee and each one is a person in terms of section 2(31) of the Act. That being so, the assessee-trust having transferred the income or the property to the benefit of Shri S. Kunjithapatham is construed to be in violation of section 13(1)(c)(ii) of the Act. Accordingly, we uphold the order of the Assessing Officer.
7. In the result, the appeal of the Revenue is allowed.
The order pronounced in the open court on Friday, the 26th of June, 2015 at Chennai.