Cash Transactions between Trust and Managing Trustee are not covered u/s 269SS of Income Tax Act: ITAT deletes Penalty [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that the managing trustee of the society is not covered by the expression “any other persons” occurring in section 269SS or 269T of the Income Tax Act, 1961 and therefore, penalty cannot be levied for such cash transactions.

The assessee, Akash Education & Development Trust is a registered society u/s. 12AA of the Act and its income is exempt u/s. 11 of the Act. The assessee in the stage of establishment of educational institution has undertaken the construction activity of building for the purpose of achieving the object of assessee society. In the course of construction of the building, the assessee needed urgent funds to meet the day to day requirement of the construction. In that course of time, the assessee received Rs.15,64,50,000 in cash from the managing trustee viz., Shri K. Muniraju.

The income tax department found the same as a deliberate and intentional violation of the provisions of section 269SS of the Act and imposed penalty under section 271D of the Act.

The assessee contended that the penalty cannot be imposed unless the party concerned has acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation. It was further contended that the transaction between the assessee and managing trustee cannot be termed as loan so as to apply the provisions of section 269SS of the Act.

The Tribunal bench comprising Shri Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member has accepted the above contention and observed that the term “any other person” in the context of section 269SS appears to mean persons who are not very closely and independently connected with the assessee.

“In the present case, the assessee accepted loan from its managing trustee, who is looking after the day to day affairs of the present assessee. This being so, the transaction between the assessee and managing trustee cannot be termed as loan so as to apply the provisions of section 269SS of the Act. The transaction between the assessee and managing trustee is in the course of discharge of duty of the managing trustee in the day to day affairs of the assessee trust and when the assessee needed some funds to meet the day to day operation of the construction of the college building, it was facilitated by the managing trustee and assessee is having running account with the managing trustee and the transaction between these two parties cannot be termed as loan transaction so as to levy penalty u/s. 269SS of the Act.”

Holding that the managing trustee of the society is not covered by the expression “any other persons” occurring in section 269SS or 269T of the Act, the Tribunal said that “More so, the transaction undertaken by the assessee with managing trustee is incidental to attainment of main object of assessee society and in this context, if the assessee has not paid money to the contractors who have undertaken construction of the building, the managing trustee himself is liable for all the consequences of non-payment even bouncing of cheques for insufficient funds and in that view the money advanced by the managing trustee to the assessee to meet the urgent business exigency amounts to reasonable cause within the purview of section 273B of the Act and on this count also, the penalty cannot be levied. Further, the concept of mutuality is primarily based on the principle that one cannot profit from himself. Thus, when the managing trustee provided funds to the society to meet urgent business exigency, it cannot be said that it was a loan transaction so as to attract penalty u/s. 269SS of the Act.”

Shri Rajeev Nulvi appeared for the assessee.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.