IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 27TH OCTOBER 2010 / 5TH KARTHIKA 1932 ITA.No. 1729 of 2009() ---------------------- AGAINST THE ORDER DATED 03/04/2009 IN ITA 17/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ------------------------------ ANSARI CHARITABLE TRUST, PERUMPILAVU, P.O.KARIKKAD,TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT/RESPONDENT. -------------------------- THE COMMISSIONER OF INCOME TAX, TRICHUR. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 27/10/2010, ALONG WITH ITA NO.1 OF 2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... I.T. Appeal Nos.1729 of 2009 & 1 of 2010 .................................................................... Dated this the 27th day of October, 2010. JUDGMENT Ramachandran Nair, J. These are appeals filed by the assessee challenging the orders of the Income Tax Appellate Tribunal confirming disallowance of income tax exemption for the assessment years 2004-2005 and 2005-2006. We have heard Senior counsel Sri.Sarangan appearing along with Adv. Sri.P.Balakrishnan for the appellant and Standing Counsel appearing for the respondents. 2. The facts leading to the controversy are the following. Assessee was granted certificate under Section 12A as a charitable and educational institution for claiming income tax exemption. However, during scrutiny of the income tax returns filed for 2004-2005, the Assessing Officer noticed that the assessee had invested Rs.35 lakhs in M/s.City Centre which is under the ownership and control of one of the trustees. The claim of the assessee was that assessee had made application before the Calicut University for starting an Arts College ITA Nos.1729/09 & 1/10 2 for women. However, since there was no space for starting the Arts College, they wanted to shift the Computer Centre that was running in their premises to a new building at Thrissur. According to the assessee, the fund was given to M/s.City Centre for construction of the building for accommodation of the Computer Centre. Admittedly no building was constructed or given to the assessee by M/s.City Centre. On the other hand, the amount paid by the assessee which is a massive sum of Rs.35 lakhs, was repaid to the assesse by M/s.City Centre in instalments in the course of several years. All the authorities found that the action of the assessee in investing funds of the charitable institution in a trust which is a business concern which is under the ownership, management and control of one of the trustees and his family members, is in violation of Sections 13(1)(c), 13(2)(h), 13(2)(a) and 13(1)(d) besides violation of Section 11(5) of the Act. 3. Before us, assessee' counsel produced copy of the agreement to substantiate that advance was given for the purpose of acquiring building for shifting the Computer Centre. According to the assessee, only after shifting Computer Centre to the new building which was ITA Nos.1729/09 & 1/10 3 proposed to be constructed with the funds given, assessee could find place for starting the Arts College. Copy of the agreement produced before us which also forms part of the record, shows that the agreement is not even signed by the assessee. Further, total consideration for the acquisition of building is Rs.43 lakhs and assessee has without any security whatsoever advanced as much as Rs.35 lakhs. Admittedly the transaction did not take place in as much as M/s.City Centre which is run by one of the trustees of the assessee, never constructed or gave the building to the assessee. The worst part is that even after cancellation of the so-called agreement, M/s.City Centre did not even return the amount of Rs.35 lakhs advanced by the assessee. Admittedly the amount was returned in the course of several years in instalments. The sum total of the admitted facts is that assessee has forfeited their claim of exemption under Section 11 of the Act for so much of the period the amount was allowed to be retained by one of the trustees for business purpose. We find that the forfeiture of exemption is rather automatic in this case because findings of fact clearly establish diversion of funds by the trust for business purpose of one of the trustees. We do not find ITA Nos.1729/09 & 1/10 4 any substantial question of law or any merit in the contention of the assessee to interfere with concurrent findings of fact on diversion of funds by all the authorities including the Income Tax Appellate Tribunal. We, therefore, dismiss the appeals. C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms