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14. Before this Bench also, the ld. AR could not justify the requirement for purchase of the Mercedes Benz car even after the auction sale of the hospital. The ld. AR also failed to substantiate by any document or evidence whether the said vehicle was used for any furtherance of the charitable objects of the trust. Admittedly, when this vehicle was purchased the auction sale of the hospital has already been taken place. It is further the fact that through this hospital only the trust was performing its charitable activity. When this hospital was sold, thereafter, there was no need to purchase any vehicle so to say that it was for furtherance of the charitable objects of the trust. The assessee also failed in every stage to reasonably explain the purchase of the vehicle and the running cost of such vehicle vis-à-vis the charitable objects of the trust. We, therefore, uphold the decision of the ld. CIT(A) in disallowing the exemption u/s.11 invoking the provisions of section 13(1)(c) r.w.s. 13(2) of the Act.

Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi CIT(A) upheld the denial of exemption u/s.11 for violation of section 13(2)(c) r.w.s.13(1)(c) for the diversion of trust income for the benefit of persons covered u/s.13(3) of the Act as made by the AO.

16. Even before this Bench also, the ld. AR reiterated the submissions placed before the subordinate authorities. However, he could not justify the reasons for undertaking of the foreign tour in furtherance of the objects of the trust by the Managing Trustee and the Trustee Secretary. Admittedly, the trust hospital has been sold through auction and therefore, there is no reasonableness involved in incurring the expenses on foreign tour by saying that the same was to further the charitable objects of the trust. We further observe that, in the decision of Vijeta Educational Society (supra), the Hon'ble High Court has held that in view of section 13(1)(c) even if only part of income was directed to be applied for the benefit of specific person, then it would render the entire income of the trust or charitable institution liable to tax. Further, the legislature, however, also creates a fiction and enumerates in clause (a) to (h) of sub-section (2) of section 13 the list of circumstances in which the income shall be deemed to have been used or applied for the benefit of specified person. These clauses encompasses various types of benefit such as by way of interest free loans, loans without security, permission or license to use land or other property without charging adequate Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi recompense, excessive payment for services, sale of property for identical consideration and investment of trust fund in concern belonging to specified person or in which he has substantial interest. Reverting to the facts of the present case, there has been payment of excessive salary to the Managing Trustee Mr. Vikram Chavan, there has been payment of excessive salary to the Trustee Secretary Smt. Pratima Chavan, and the trust funds have been used in activity where these interested persons were only benefitted, has already been observed in the preceding paragraphs with the purchase of high end Mercedes Benz car, undertaking foreign tour, all these were nothing but for the benefit of the said interested persons. Noting has been done in this regard so to say that it was for the furtherance of the objects of the trust or it was for serving any charitable purpose of the trust. We do not find any infirmity with the findings of the ld. CIT(A) and the AO that due to violations of section 13(2)(b)/ r.w.s. 13(1)(c) of the Act for making payment of excessive salary to the Managing Trustee and the Trustee Secretary and further due to mis-utilization of trust funds for purchase of Mercedes Benz car and undertaking foreign tour by them, the benefit of exemption u/s.11 has been denied. Once the assessee ceased to get the exemption u/s.11, income of the assessee was required to be computed following the various charging provisions of the Act. Ground Nos. 1 and 2 of the assessee are dismissed.

Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi

22. We have heard the rival contentions on this issue and we observe that admittedly the assessee trust has been denied exemption u/s.11 of the Act for violation of the provisions of section 13(2) r.w.s.13(1)(c) of the Act for diversion of the trust funds for benefit of interested persons u/s.13(3) of the Act. We have already examined during the course of this order that whether it is excess payment of salary to the Managing Trustee Mr. Vikram Chavan, whether it is excess payment of salary to the Trustee Secretary Ms. Pratima Chavan, whether it is purchase of Mercedes car and its running expenses and whether going on foreign tour have neither been for charitable purposes or in furtherance of charitable objects of the trust. We have observed that nothing has been proved by the assessee that these were done in furtherance of the charitable objects of the trust rather the Department has extensively verified the facts and we are convinced as held by us in the preceding paras that there has been mis-utilization of funds of the trust for benefit of interested persons and the trust has not performed any charitable activity or any activity in furtherance of charity to justify its claim for exemption u/s.11 of the Act. When there is violations of provisions of section 13 and there has been mis-utilization of trust funds only for benefit of interested persons of the trust, the exemption u/s.11 has been rightly denied to the assessee trust. It is in this factual scenario the ld. CIT(A) had held that the assessment has to be done regarding the Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi assessee as normal AOP and the charging provisions of the Act has to be applied. Therefore, the AO has applied while computing the income of the assessee as AOP from short term capital gain and long term capital gain on account of sale of property in form of land and hospital strictly following the provisions of the Act. This finding of the ld.CIT(A) is well reasoned based on the facts of the case. However, before us, the assessee has submitted that they had taken loan from bank and from Managing Trustee for construction of hospital building and acquiring various machinery following due procedure of law and therefore, repayment of such loan is to be regarded as application of income for charitable purposes. This requires detailed factual verification at the level of the AO to see and verify the contention of the assessee vis-à-vis the facts of the case. In the interest of justice, we set-aside the order of the ld. CIT(A) on this issue and remand the matter to the file of AO for re-adjudication while complying with the principles of natural justice. Ground No.5 is allowed for statistical purposes.

24. We have observed in the preceding paras that here is a trust where the funds have been utilized for the benefit of interested persons of the trust and that there has been no activity of charitable nature performed by the trust. The charitable objects for which the trust has been formed, ceased to exist after the sale of the hospital and taken possession by the buyer. Whatever expenses were incurred namely, the excess salaries paid to the Managing Trustee and Trustee Secretary etc., are all application of the trust funds for the personal benefit of the interested persons. Therefore, the exemption u/s.11 of the Act has been rightly denied to the assessee and the assessee has been assessed as AOP by the department. In such background, the sanctity and validity of the argument forwarded by the assessee as aforestated does not come into picture. This is because there has to be some activity done by the charitable trust so as to further the charitable objects of the trust. In this case, the only charitable activity that was performed by the assessee was Seth Ramdas Nathubhai Dharmadaya Vishwasta Nidhi through the hospital which itself was auctioned and sold as per sale deed dated 18-08-2010. Thereafter, the trust has incurred huge expenses in form of payment of excessive salary, purchase of high end vehicles, foreign tour of the Managing Trustee and Trustee Secretary and none of these activities are held to be for the charitable purposes for which the assessee trust has been formed. Therefore, it is difficult at this stage by this Bench to analyse the argument of the trust that the expenses incurred for charitable and religious purpose in earlier year against the income earned by the trust subsequent year will have to be regarded as application of the income of the trust for charitable or religious purposes. To our understanding, when there has been no activity for charitable purposes conducted by the assesse trust, this argument on the very face of it does not have any legal basis for its sustenance. However, since income-tax is a Welfare Legislation in the interest of justice, this issue may be examined by the ld. AO. In view thereof, we set-aside the order of the ld. CIT(A) on this issue and remand the same to the file of ld. AO for re-adjudication while complying with the principles of natural justice. Ground No.6 is allowed for statistical purposes. Grounds of the assessee are partly allowed for statistical purposes.