The Pune bench of Income Tax Appellate Tribunal (ITAT) has recently held that application for registration under Section 80G(5)(vi) of Income Tax Act, 1961 should not be allowable, if trust constructed building deriving funds from the trust on land owned by trustees.
Assessee-Mauli Multipurpose Organisation sought registration under Section 80G(5)(vi) of the Income Tax Act. The CIT(Exemption) issued a letter through ITBA portal requesting to upload certain other information/clarification for the purpose of verifying the genuineness of the activities carried out during the process of above said application.
CIT(Exemption) found that assessee has shown value of building of Rs.14.62 lacs and no corresponding land is reflected in the Balance sheet for construction of building
Further it was noted that the assessee constructed the said building deriving funds from the trust on the land owned by the four trustees. Therefore, after considering the submission of the assessee CIT(A) rejected the application of the assessee.
Before the tribunal Kishor B. Phadke counsel for the assessee submitted that land belongs to the four trustees and the assessee’s trust entered into lease agreement with the said trustees for 30 years. There is no basis for rejecting the application filed seeking for registration under Section 80G(5)(vi) of Income Tax Act.
B. Koteswara Rao, counsel for the revenue, supported the decision of the lower authorities.
It was observed by the tribunal that activity of construction of buildings as per the terms of the lease agreement is a direct benefit of the persons covered under Section 13(3) of the Income Tax Act which clearly violates the conditions mentioned under Section 80G(5)(vi) of the Income Tax Act.
Further the lease agreement is not containing automatic renewal clause and the trustees can dispossess the assessee from the building constructed by the assessee from its funds.
The assessee’s trust after deriving the benefit of donations and constructing buildings on the land belonging to the trustees is a tax free asset, will hand over the said tax free asset to the trustees at the end of lease period of 30 years.
The Two member bench of S.S. Viswanethra Ravi, (Judicial Member) and G.D. Padmashali, (Accountant Member) upheld the order of CIT(Exemption), rejecting the application for grant of recognition under Section 80G(5)(vi) of the Income Tax Act.
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