No Tax Relief to Trust for Gift made to an Unregistered Trust: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that a Trust cannot enjoy the benefit of Section 11 of the Income Tax Act in case of the gift made to another Unregistered trust under the Income Tax Act though the same have similar objects.

In the instant case, assessee, M/s.Paramasiva Naidu Muthuvel Raj Education Trust is a charitable trust registered under section 12AA of the Income Tax Act, 1961. During the course of assessment, the Assessing Officer noted that the assessee had given gifts to another Trust under the name of M/s. PMR Bangaru Subbammal Educational Trust. The gifts were immovable property and a cash gift of 86 lakhs. It was noted that the gift of land was later revoked. The Assessing Officer denied the assessee the benefit of exemption under section 11 of the Act on ground of violation made under sections 13(1)(c) and 13(1)(d) of the Income Tax Act.

The Tribunal noted that during relevant assessment year, the land had been made available to M/s.PMR Bangaru Subbammal Educational Trust, which is a Trust that does not have registration u/s.12AA of the Act. Further, the assessee trust has given loans, which are interest-free to M/s.PMR Bangaru Subbammal Educational Trust.

“The fact that the objects of the assessee-trust and that of M/s.PMR Bangaru Subbammal Educational Trust are identical, would not make M/s.PMR Bangaru Subbammal Educational Trust as having registration u/s.12AA of the Act. M/s.PMR Bangaru Subbammal Educational Trust must on its own independent status claim and have the registration u/s.12AA of the Act. In the absence of such registration, dealing with such an unregistered trust would affect the exemption available to the assessee.”

“In such cases, where violation of sub-section (2) of section 13 takes place the benefit, directly or indirectly, to any person referred to sub-section(3) of Section 13, then the First provisions of section 13(1) clearly states that nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, which clearly shows that provisions of the section-11 and section-12 are no more available in such cases. This being so, we are of the view that the ld. Assessing Officer was right in denying the benefit of section-11 in respect of the income of assessee as there has been violation of the provisions of the sections 13(1)(c) and 13(1)(d) read with section 13(2) of the Income Tax Act.”